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Ask The Lawyer: Does The New Fiduciary Rule Apply To Plan Sponsors And Committees?

Does the new Fiduciary rule apply to plan sponsors and committees?

“I was already a fiduciary, so the new rule doesn’t apply to me, right?” A client asked me this question on June 8, and I have lost track of the number of times I have heard it from plan committee members and other company fiduciaries recently. It sounds right, doesn’t it?  Company representatives and committee members were fiduciaries before parts of the new Fiduciary Rule became effective at midnight on June 9, and they are still fiduciaries. But as I explained to the Committee member who asked that question, it just isn’t that simple.  Here is why—

The Rule affects those who give or may give investment advice, such as brokers, advisors and your plan provider’s employees.  However, as a plan fiduciary, you are responsible for monitoring those people and you need them to be compliant. In addition, you need to know whether your providers are cutting back on their services in order to avoid being classified as fiduciaries under the new Rule or whether they are required to put your participants’ interests first.  The Rule can even affect your own HR employees, who could become fiduciaries if they give advice to participants.  Here is a short action list of steps for plan fiduciaries to take:

  1.  Determine which of your current providers will be fiduciaries under the Rule and which will not.  The fiduciaries should acknowledge that status in writing.
  2.  Review services agreements to determine whether changes should be made to services and fee provisions.
  3.  Renegotiate fees with any service providers who cut back their services.
  4.  Establish conduct guidelines for internal employees to avoid their becoming fiduciaries.
  5.  Review your education program to make sure that specific investments are not being recommended in ways that unintentionally turn the program into fiduciary advice.
  6.  Make sure that those giving advice to employees on rollovers, and especially rollovers to their own IRAs, are adhering to fiduciary standards.
  7.  You will probably be asked to make representations to your advisers and providers to enable them to comply.  Understand the purpose of those representations – do they want to avoid fiduciary status or are they using the Best Interest Contract Exemption (BICE)?- and decide whether you can/will make them.  Ask for reciprocal representations where appropriate to ensure your advisor or provider is doing what it needs to do in order to comply.

Last, but not least, monitor developments because the Fiduciary Rule is currently under review by both the Department of Labor and the Securities and Exchange Commission. Additional requirements are scheduled to become effective on January 1, 2018, but expect changes or additional delays.  

by Carol Buckmann / Cohen & Buckmann, P.C. /



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