Because the new DOL conflict of interest rule affects both DC plans and IRAs, it has captured the attention of the entire advisor and broker dealer world many of whom have paid little attention to the DOL and ERISA in the past. In fact, the sale of two large broker dealers by AIG and MetLife respectively were blamed in part on the DOL rule. So amid all this noise and anxiety, how will it affect companies sponsoring a defined contribution (DC) plan?
Unfortunately, the answer is quite complicated which is why larger plans are consulting with their ERISA counsel and all plans are waiting to hear from their advisor and record keepers on how they intend to comply with the rule. Acting precipitously will likely cause more work. So here’s the gist of the rule offered by a Michigan-based law firms with some simple recommendations.
The DOL rule basically broadens the definition of who is a fiduciary and what actions will make them one. Under the new rule effective April 10, 2017 if a party either acknowledges that they are acting as a fiduciary or they render advice under a written or verbal agreement recommending an investment, they will be considered a fiduciary.
RIAs (registered investment advisors) already act as fiduciary so the rule change is bigger for brokers and record keepers. One litmus test is whether the advisor or provider is receiving variable compensation meaning what they earn varies based on which investments they recommend which can create conflicts.
Not included are:
- General education about investments.
- General communications in newsletters or speeches.
- Employees in the company helping others.
So what should plan sponsors do now? Ask their record keeper and advisor in writing if they are acting as a fiduciary. If not, ask if that might change under the new rule. In either case, agreements and contracts will have to be changed so ask when and how that change might occur. Don’t just rely on the party you are asking about their services – as an ERISA fiduciary, you need unbiased advice.
