While much of the focus of the DOL’s fiduciary rule has been on the effect it may have on defined contribution (DC) plans like 401ks and 403bs, the larger impact may be on IRAs. Though the DOL has no enforcement jurisdiction over IRAs, it has used its power over prohibited transaction to require that advisors working on IRAs act in their client’s best interest as a fiduciary. A plan sponsor attending a TPSU program held at Vanderbilt University explains his concerns and why the DOL rule may be sorely needed to protect employees that separate from their company.
The administrator of an 8,000 eligible 401k plan receives all the notifications about employees rolling their assets into a IRA and sees many going to small, local advisors. He is concerned that these employees may not be getting the best advice and that the advisors are not acting in the investors best interest.
Specifically he wonders whether the advisor may be conflicted about whether the investor should actually be moving their money out of the plan which has many low cost options overseen not just by the employer’s investment committee but also by an advisor selected and monitored by the company whose fees are generally lower than what an individual investor may pay an outside advisor. The plan administrator is particularly concerned about employees in remote locations.
Most of the time, the administrator gets notified about the rollover after the fact but, even if he knew beforehand, many plan fiduciaries are reluctant to intercede. One of the key elements of the DOL conflict of interest rule is that advisors recommending a rollover from an ERISA plan into an IRA should consider whether it’s in the best interest of the investor considering tax benefits and protection from creditors and the quality and costs of the investment and the advice as well as whether that decision process has been documented.
With the DOL rule due to be effective April 10, 2017, the kind of protection that IRA investors will have is in question after president Trump asked the DOL to consider a delay.
