Fiduciary Rule for DC Plan Sponsors
Though members of the Investment Committee and those that make decisions for companies that sponsor a defined contribution (DC) plan under ERISA are already considered to be fiduciaries, the new DOL rule greatly impacts their relationship with service providers, especially advisors. The Wagner Group, a leading ERISA law firm, lays out the bottom line requirements of the DOL rule for plan sponsors in a clear and refreshingly simple manner.
Under the current definition of fiduciary (Fiduciary Rule for DC Plan Sponsors), most DC plan advisors would not be considered ERISA co-fiduciaries. The new rule effective April 10, 2017 changes all that as the definition has been relaxed and broadened. For example, advisors will not have to give advice on a regular basis or be the advice does not have to be the primary basis for the investor’s decision to be considered a fiduciary. According to the Wagner Law Group:
The Fiduciary Rule (Fiduciary Rule for DC Plan Sponsors) takes a broader approach and characterizes any investment-related communication that “would reasonably be viewed as a suggestion [to] engage in or refrain from taking a particular course of action” as fiduciary in nature even if the communicator does not intend to give definitive advice (whether on a primary basis, or otherwise).
So with more advisors acting as co-fiduciaries, there’s more work and potential liability in hiring as well as monitoring them. The DOL rule limits provider’s ability to prohibit class action lawsuits in contracts making the risk of lawsuits even greater and heightens the need for fiduciary insurance which is separate from the ERISA bond. In addition, co-fiduciaries must disclosure potential conflicts including direct and indirect compensation which may result higher fees.
Plan sponsors will have to be even more diligent about monitoring education by providers to determine if it crosses the line over to advice and they need to be more mindful about record keepers and advisors hired by the providers who solicit or even offer IRA rollover options. Because with the stakes higher under the new DOL rule, if something goes wrong, plan sponsors might be held liable if they did not properly hire or monitor the co-fiduciary provider or advisor.
