The Department of Labor’s Fiduciary Rule went in to effect less than a month ago, and already new concerns surrounding it are arising. The first of these is the struggle of the SEC and DOL to come to an agreement on the technical definition of a “fiduciary.” For the law to go in full effect on its set January 1, 2018 applicability date, these organizations must come to a mutual decision on the definition of fiduciary and standard of care sometime before December 31. Coming to this agreement before the set date is turning out to be increasingly impossible. It is the opinion of Fred Reish of Drinker Biddle that “the DOL will extend the transition period, perhaps for as much as a year. That would allow time for the two agencies to work together in a thoughtful manner and at a reasonable pace.”[1] In the meantime, all the transition period regulations of the Fiduciary Rule will remain in place.
Although the full standards set by the regulation will not be in place until January 1, 2018 at the earliest, there are still some important things to remember in the meantime. Primarily, among these is a message to employers; even if you have entrusted your plan oversight to an insurance provider, payroll company, or other TPA, you could still be held liable by the DOL for any non-fiduciary actions. This is because some record-keepers and TPAs have claimed that they are not Fiduciaries, and that for a company’s plan to satisfy the Fiduciary Rule, plan owners must obtain a third-party fiduciary service provider to stay compliant with the new law. Doing so will simply add another layer of unnecessary fees. So, as a plan owner, it is important to understand the exact role your TPA is playing in the management of your plan, and to make sure that you are not being charged excessive fees. But, primarily, you should make sure that your TPA is, in fact, also acting as your plan fiduciary so that you will not personally be held liable by the DOL for not complying with the new fiduciary standard.
Although some groups (such as record-keepers and other TPAs) are trying avoiding the new fiduciary responsibility, other previously non-fiduciary employees could now be considered a fiduciary under the DOL’s new regulations. Largest among these are fund managers, who will now be considered fiduciaries with respect to activities that occur before an investment takes place due to the communications required for that investment to be made. Since these communications, in some circumstances, can rise to the level of a “recommendation” under the final DOL regulation, the fund manager will be considered a fiduciary in certain scenarios, and should act as such to prevent liability. To help fund managers avoid said liability, as well as help guide them in showing their good faith compliance with the final regulation, Winstead recently released an article laying out some helpful steps in plan compliance:
- “Revise private placement memorandums and subscription documents to incorporate statements disclaiming the provision of investment advice to benefit plan investors;
- Adopt universal policies regarding permissible marketing and promotional activities; and
- Require written representations of independent fiduciaries to satisfy regulatory exemption.”[2]
[1] Reish, Fred. Interesting Angles on the DOL’s Fiduciary Rule #52. http://fredreish.com/interesting-angles-on-the-dols-fiduciary-rule-52/
[2] With the tip of a hat, a fund manager can be an ERISA fiduciary. http://www.winstead.com/Knowledge-Events/News-Alerts/228406/With-the-Tip-of-a-Hat-a-Fund-Manager-Can-Be-an-ERISA-Fiduciary