What Should DC Plan Sponsors Know and Do about the New DOL Fiduciary Rule

It’s hard to review the financial press and not read about the DOL’s new fiduciary rule. And while it might affect financial advisors and institutions more than employers sponsoring a defined contribution (DC) plan like a 401k or 403b, DC plan sponsors should take steps to prepare for how the relationship with these vendors will change. The law firm of Findley Davies provides a simple and clear review for plan sponsors.

First, let’s start with the basics. DC Plan sponsors should follow basic fiduciary principles managing their plan which should include that:

• The plan is designed in the sole interest of participants
• Actions are prudent
• Plan documents are followed
• Investments offered are diversified
• Fees are reasonable
• Advisors are hired prudently

The old fiduciary advice rule was written in an era dominated by DB (defined benefit) plans where IRA rollovers were not needed – there was a five-part test defining who was and was not a fiduciary:

1. Advice was rendered for a fee
2. On a regular basis
3. Through mutual agreement
4. Used as the primary basis for purchase and
5. Was individualized

Under the new rule originally proposed in 2010 which was finalized April 8, 2016, a party will be considered a fiduciary for a DC plan and IRA if:

1. They render advice for a fee
2. Which is specific to that investor

Along with DC plans and IRAs, other plans like HSAs are covered.

So what took so long? There were a number of carve outs, clarifications and definitions after input from the financial service industry concerned that investors with fewer assets would be denied access to advice as advisors would not want to act as a fiduciary for these smaller accounts.

What should DC plan sponsors do? According the Findley Davies, reasonable steps include:

1. Review fiduciary best practices monitoring providers and advisors
2. Include HSAs in the review
3. Know when a party is acting as a fiduciary
4. Review agreements with vendors
5. Review educational materials
6. Review communications to employees about IRA rollovers
7. Communicate the new rule to employees