If you’ve had better things to do, you might only be vaguely aware that the new fiduciary rule becomes effective on June 9, 2017. We’ve written about this before (here and here), but a quick refresher might be helpful as the deadline looms. For employers, the June 9 deadline should be a nonevent, other than an opportunity to review HR procedures and relationships with vendors.
New Fiduciaries
An employer, as sponsor of a retirement plan, has always been a fiduciary subject to duties imposed by ERISA. This doesn’t change under the new fiduciary rule. What the new fiduciary rule does is expand the definition of fiduciary to include certain providers of retirement services (financial institutions, recordkeepers) that were not previously considered fiduciaries.
Under the new rule, a fiduciary will include anyone who provides investment advice for a fee to a retirement plan or its participants. Investment advice includes recommendations about whether to roll over funds from an employer-sponsored plan to an IRA and referrals to investment advisers.
So What Happens on June 9?
The new fiduciary “rule” is actually comprised of final regulations and related exemptions that were scheduled to become effective on April 10, 2017. But President Trump issued an executive order directing the U.S. Department of Labor to reconsider everything. Following the order, the DOL announced a phased-in implementation period with June 9, 2017, as the first deadline. The final effective date—unless the rule is changed or repealed—is January 1, 2018.
On June 9, the expanded definition of fiduciary becomes effective, as does the requirement under certain exemptions for investment advisers to comply with impartial conduct standards. The impartial conduct standards require investment advisers to—
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give advice in the best interest of the investor,
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charge no more than reasonable compensation, and
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make no misleading statements about investment transactions, compensation, and conflicts of interest.
(Employers, as fiduciaries, are already required to do these things.)
The rest of the new fiduciary rule’s requirements—including acknowledging fiduciary status in writing; signing a contract with IRA investors; disclosing services, fees, and conflicts—are scheduled to take effect in 2018. From June 9, 2017, to January 1, 2018, the DOL will emphasize compliance assistance, rather than citing violations and imposing penalties.
What to Do Now
Even though employers are not required to do anything by June 9, they should use the deadline as a reminder to do the following:
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Ask those who provide services for your retirement plan—recordkeepers, custodians, advisers—if they consider themselves fiduciaries. If they don’t, ask and understand why.
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Review your service agreements. Your recordkeeper might be relying on an exemption from the new fiduciary rule based on a reasonable belief that you’re an independent fiduciary who manages or controls at least $50 million. Some recordkeepers are documenting their reasonable belief by negative consent—i.e., assuming that you’re an independent fiduciary unless you tell them otherwise.
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Review internal procedures to make sure that HR employees are not giving investment advice. Remember that general financial, investment, and retirement information is not investment advice. It’s okay, for example, to encourage increased contributions. Avoid recommendations about specific investments, IRA alternatives, and investment managers or advisers.
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