The Department of Labor (DOL) released a new round of FAQs Friday designed to help non-fiduciary advisors to plans navigate its complicated and controversial fiduciary rule.
The six-page guidance addresses three questions aimed at resolving issues affecting defined contribution (DC) plans and retirement plan advisors.
The department acknowledges the confusion created by a two-phase implementation period. On June 9, the first phase of the rule went into effect and requires advisors to adhere to Impartial Conduct Standards.
The second phase is set to take effect Jan. 1, 2018, and deals with the exemptions. However, even that is clouded by the expectation that the DOL will publish a delay.
The fiduciary rule created a sticky situation for non-fiduciary advisors servicing DC plans. They became fiduciaries with the new law, which created a conflict with the Employee Retirement Income Security Act of 1974.
A section of ERISA called 408(b)(2) requires service providers receiving compensation from a DC plan to disclose their fiduciary status to clients. Otherwise, they served in a non-fiduciary capacity and would have had to update their disclosures to comply with the new regulation.
The DOL takes a lenient view, assuring plan sponsors they don’t need to use the term “fiduciary,” as long as they are accurately describing the services they are providing.
“In general, if a covered service provider will continue after the Fiduciary Rule to provide services only in a non-fiduciary capacity, or has already effectively disclosed investment advice fiduciary status, no additional disclosure would be required under the 408(b)(2) regulation,” the FAQs reads.
The department also takes a lenient view on the required disclosure accompanying any change in fiduciary status. Requiring that acknowledgment is inconsistent with the Best Interest Contract Exemption, which doesn’t take effect until Jan. 1, the FAQs note.
Under 408(b)(2), that disclosure is required within 60 days. The DOL basically waives that deadline in the FAQs, informing advisors they will be in compliance if the disclosure is made after 60 days.
The remaining two questions are:
Q: Would it be fiduciary investment advice under the fiduciary rule to encourage additional savings or contributions to a plan or individual retirement account?
A: No. The fiduciary rule generally does not treat communications “about the benefits of plan or IRA participation, [and] the benefits of increasing plan or IRA contributions” as fiduciary investment advice, provided that the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property.
Q: Would it be investment advice under the fiduciary rule if a person makes recommendations or suggestions to a plan administrator or other plan fiduciary relating to methods to increase employees’ participation in, or level of contributions to, an ERISA plan?
A: No. Provided that the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property, the department would not view such communications as investment advice recommendations within the meaning of the riduciary rule even in cases in which the recommendation is based on specific attributes of the plan or its demographics, such as correlations between participation or contribution rates and specific participant attributes.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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