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What is the Definition of an Employee Benefit Plan “Fiduciary”?

January 03, 2017

Plan sponsors: There’s a changed definition under ERISA- plan “fiduciaries” now have a more broad scope—read on to find out what duties now fall under this important role.

What are the duties of your employee benefit plan fiduciary? This ‘fiduciary’ title now holds much more significance, not only in terms of status but also the function this person performs on behalf of the Plan. The US Department of Labor (DOL) released an updated definition of fiduciary under the Employee Retirement Income Security Act (ERISA) in April—you’ll want to be sure you’re aware of the altered definition—it will take effect April 2017.

A little bit of background

The plan ‘fiduciary’ is an essential part of the employee benefit plan.

  • ERISA requires plan fiduciaries to act cautiously and solely in the interest of the plan’s participants and beneficiaries, meaning this person prohibits self-dealing, and provides judicial remedies when anyone commits a violation of the plan standards.
  • The security of EBPs depends on their fiduciaries, according to Congress.
  • The EBSA (Employee Benefits Security Administration) has full authority for administering and enforcing the fiduciary.

Under the current definition, the fiduciary does not have discretionary authority over plan assets. The revised definition changes the original “5 part” definition of a fiduciary under which a person is considered an investment advice fiduciary if he/she:

  1. Gives investment advice about the value of or advisability of investing in securities or other property;
  2. Gives such advice on a regular basis;
  3. Provides advice pursuant to an agreement or arrangement with the Plan;
  4. Gives advice with the understanding that it will serve as a primary basis for investment decisions;
  5. Gives advice that is individualized to suit the needs of a specific plan.

The revised definition of a fiduciary takes effect April 10th, 2017 and is as follows:

  • The proposed changes would essentially remove the “regular” and “primary basis” stipulations from the original five part definition
  • A fiduciary is a person who (for compensation) offers investment advice on a plan or IRA including:
    • Advising on investing in securities or other investment property, including advice on rollovers, transfer or distributions from a plan or IRA
    • Guidance on managing securities or other investment property, including recommendations on investment policies or strategies, portfolio composition, professional referrals for investing services, types of investment accounts (such as brokerage v. advisory) and rollover activities including the destination.

Why did the DOL make this change?

The DOL has been working on this change for six years. The prior definition needed to be modified to broaden the definition of fiduciary advice to ERISA plans and extend it also to include advice to individual accounts (such as IRAs).

BIC Exemption
The final regs also retain something called the BIC Exemption (Best Interest Contract). The BIC Exemption is designed to allow brokers and their firms to receive commissions and other 3rd party compensation. All the while, the exemption upholds regulatory constraints which sustain the duties of loyalty and care under ERISA’s prudence standard.

Questions on the DOL’s changes? Contact a member of our Employee Benefit Plan Team Today.

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