Fiduciary Rule Takes Effect June 9, 2017
The new Department of Labor (DOL) Secretary confirmed last week that the DOL’s Fiduciary Rule will take effect on June 9, 2017.
As described in our prior alert (as updated here and here), the DOL’s Fiduciary Rule changes the playing field for many investment advisers and brokers who serve individual retirement accounts (IRAs) and retirement plans. Under prior law, a large portion of investment advisers and typical retail brokerage arrangements that service IRAs or retirement plans generally were not treated as fiduciaries for purposes of ERISA and the Internal Revenue Code (because the plan/IRA was not primarily relying on the adviser’s/broker’s advice in making investment decisions). As a result, the investment adviser/retail broker was allowed to receive certain commission income, revenue-sharing payment or other compensation that would otherwise be prohibited by ERISA or the Internal Revenue Code and was not subject to fiduciary claims under ERISA. Beginning June 9, 2017, it is significantly more likely that an investment adviser or broker who works with IRAs or retirement plans qualifies as a “fiduciary” who owes certain duties to the IRA owner or retirement plan participants, including to act in their best interests, avoid conflicts, and avoid fee arrangements that might be considered prohibited transactions under ERISA or the Internal Revenue Code.
Plan sponsors and IRA owners can expect, between now and June 9th, to receive notices from their existing investment advisers, brokers, and other professionals involved with their plan or IRA investments (if they have not already received such notices). Most of these notices will be issued pursuant to a transition rule that applies through December 31, 2017, and allows certain providers to exempt themselves from some of the more burdensome requirements of the Fiduciary Rule if they take certain good faith steps and adopt certain policies to avoid conflicts of interest, including certain prohibited fee arrangements, and notify the plan/IRA of their compliance. Additional service agreement amendments and notices can be expected before year-end.
Plan sponsors or IRA owners entering into new provider arrangements should expect to see more formalized service agreements with language specifically acknowledging the “fiduciary” status of the provider (where applicable) and detailing certain policies intended to avoid conflicts of interest. Retirement plan committees may want to consider updating any investment policies or RFP procedures to include obtaining the appropriate Fiduciary Rule acknowledgments and related fee information and conflict of interest policies from providers and candidates.
The DOL issued a Field Assistance Bulletin indicating that it expects that additional changes will be proposed to the Fiduciary Rule and related exemptions. The DOL also issued additional FAQs that provide additional information on the transition rule and the applicability date of specific provider exemptions that were impacted by the Fiduciary Rule and its related guidance. Copies of the FAB and FAQs can be found here.
If you have questions regarding this publication or need assistance, please contact one of our Employee Benefits Professionals, or the Nelson Mullins attorney with whom you work.
This Brief should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.
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