In April 2024, the U.S. Department of Labor (DOL) released final rules that are intended to protect retirement savings from disloyal or dishonest recommendations from investment advisors. The new rules treat an investment advisor as a fiduciary if the investment advisor is paid (directly or indirectly) for investment advice and they reasonably appear to be making individualized investment recommendations to a retirement investor. For example, many investment firms that educate retirement plan participants and beneficiaries on rolling over 401(k) account balances to an investment firm’s IRAs or annuities may be considered fiduciaries under the new rules. If an employer engages an investment advisor for an ERISA retirement plan, the employer will need to understand and monitor when the investment advisor should be acting as a fiduciary.

These changes for ERISA retirement plans and their investment advisors are currently scheduled to go into effect in September 2024; however, Congress and the courts may intervene before the effective date.

New Investment Advice Fiduciary’s Role

According to the DOL, these new rules require investment advisors that effectively hold themselves out as fiduciaries to manage conflicts of interests, charge only reasonable fees, and give prudent, loyal investment recommendations to retirement investors. The new rule defines “retirement investor” to include retirement plan participants and beneficiaries, as expected, but it also expands the definition to include employers and benefits committees.

Note: Most employers and benefits committees may not think of themselves as “retirement investors” but they do often expect investment recommendations to be made without conflicts of interests. Thus, although this new “retirement investor” definition may be surprising, it may ultimately align with the expectations of employers and benefits committees.

For each retirement investor, the investment advice fiduciary must adhere to the following standard set of ERISA fiduciary duties:

• give advice that is prudent and loyal;
• avoid misleading statements about conflicts of interest, fees, and investments;
• establish and follow policies and procedures designed to ensure the investment advice given is in a retirement investor’s best interest;
• charge the retirement investor no more than is reasonable for the investment services; and
• carefully manage conflicts of interest and provide certain required disclosures to retirement plans.

Next Steps

Employers are required to monitor whether investment advice fiduciaries are meeting their obligations. This duty to monitor can be accomplished through steps like the following:

• seek to understand when an investment advisor should be acting as a fiduciary;
• consider whether any recommendations to rollover plan account balances to an investment firm’s IRA or annuity are in the best interest of plan participants; and
• maintain a record of how the employer is periodically monitoring its retirement plan’s investment advisor.