In 2017 and beyond, two of the biggest factors that will change how defined contribution (DC) plans like 401ks and 403bs are managed will be the DOL conflict of interest rule and the rash of lawsuits. One of the bigger issues for plan sponsors is the changing relationship with service providers like record keepers and plan advisors who, in the past, avoided fiduciary status but may have offered education and guidance. It’s essential that plan sponsors understand these changes and how it affects not just how they manage their plan and their liability but also which providers they should be using in the future.
The DOL rule is forcing many record keepers to acknowledge that under certain circumstances, they will be acting as fiduciaries especially when participants call about IRA rollovers or when there is major market disruption like the Brexit vote last summer with nervous investors calling for guidance. Routine administrative help will not be considered a fiduciary act just as plan design is not one for plan sponsors. Some record keepers do not even anticipate having to change service contracts.
Many experts are predicting that while the rule will eventually be implemented, it could be delayed form the current April 10, 2017 deadline with South Carolina congressman Joe Wilson introducing a bill recently calling for a two year postponement. But most record keepers and broker dealers are implementing policies and procedures now as if the rule will go through which could be hard to roll back.
One effect of the DOL rule is shifting roles from advisors to record keepers. More and more advisors have been acting as ERISA fiduciaries but with 250,000 advisors getting paid on a DC plan and only 25,000 experienced advisors with at least $25 million DC assets and five plans under management, broker dealers are concerned about less experienced advisors acting as a fiduciary. So called “robo fiduciary” services like the one announced by Morningstar may fill the void but plan sponsors may be more comfortable relying on their record keeper for investment related advice not just because of their current relationship but also because they want to have access to phone reps.
Though the rule does not change the role of plan sponsors under ERISA, it will change the relationships with advisors and record keepers heightening liability giving rise to more lawsuits. No one said this was easy but neither did they say it would be this hard.
