updated on April 11, 2013
Re-Proposed Rule Expected in 2013
Since the U.S. Department of Labor announced that it would be re-proposing its fiduciary definition, it has clarified that its re-proposed rule would only impose fiduciary status on those advisors who provide “individualized” advice to plan clients, according to an April 2013 analysis by Marcia S. Wagner, Esq., founder and principal of the Wagner Law Group.
The DOL has informally indicated that the re-proposed rule will be substantially similar in approach to its initial proposal. Its rulemaking the next time around will be coordinated with the U.S. Securities and Exchange Commission, which is working on its own proposal to impose fiduciary status on broker-dealers as authorized under the Dodd-Frank Act.
The DOL’s re-proposed rule is expected in the second part of 2013.
The U.S. Department of Labor (DOL) announced on Sept. 19, 2011, it will revise its existing proposed rule expanding the definition of a retirement plan fiduciary. The forthcoming re-proposal, according to the DOL's Employee Benefits Security Administration (EBSA), is designed to "inform judgments, ensure an open exchange of views and protect consumers while avoiding unjustified costs and burdens."
The proposal has been controversial since it was released in October 2010, given that it would expand the legal liability borne by plan service providers (and, by extension, by plan sponsor fiduciaries who hire and oversee them). Critics charged that broadening the scope of fiduciary responsibilities would increase plan costs, which could be passed on to plan participants.
Under the Employee Retirement Income Security Act (ERISA), a person paid to provide investment advice with respect to assets of a private-sector employee benefit plan is a plan fiduciary who must act in the best interest of plan participants and beneficiaries (and not simply proposed investments that are deemed to be suitable), or be liable to lawsuits and government fines. On Oct. 22, 2010, the DOL published its proposed rule broadening the definition of "fiduciary" to include any person who provides investment advice to employee retirement plans and plan participants for a fee or other compensation, including service providers who do not give investment advice on a regular basis. (To learn more, see the SHRM Online articles "DOL Proposed Rule Broadens Definition of 'Fiduciaries' of Retirement Plans" and "Fiduciary Obligations: The Devil’s in the Details.")
“We have said all along that we will take the time to get this right to ensure that we provide the strongest possible protections to business owners and retirement savers in plans and IRAs,” said EBSA Assistant Secretary Phyllis C. Borzi. “Investment advisers should not be able to steer retirees, workers, small businesses and others into investments that benefit the advisers at the expense of their clients. The consumer’s retirement security must come first.”
Rep. Phil Roe, R-Tenn., chairman of the House Health, Employment, Labor and Pensions (HELP) committee and a critic of the DOL's proposed fiduciary rule, responded that "During times of economic uncertainty, it is important to ensure the right policy decisions are being made so our small businesses can thrive, especially when it pertains to protecting retirement security."
Roe urged the administration to work with Congress to come up with a policy "that will not disrupt our system of retirement saving," adding, "it is my hope we can work together on policies that will improve the retirement savings of our nation's workers and retirees."
Among other negative views of the DOL proposal, in February 2011 the American Benefits Council, a group representing employers, commented: "We believe that the proposed regulations create too broad a definition of fiduciary. We are very concerned that an overly broad definition would actually have a very adverse effect on retirement savings by raising costs, inhibiting investment education and guidance for plans and participants, and significantly shrinking the pool of service providers willing to provide such investment education and guidance."
Borzi said that the DOL agrees with stakeholders and lawmakers that more public input and greater research will strengthen the rule. This extended input is intended to supplement more than 260 written public comments already received, as well as two days of open hearings and more than three dozen individual meetings with interested parties held by the agency. (To learn more, see the SHRM Online articles "Hearing Debates Concerns with DOL's Fiduciary Proposal" and "DOL's Proposed Definition of 'Fiduciary' Draws Fire, Support.")
Specifically, the agency anticipates revising provisions of the rule including, but not restricted to, clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule’s application to arm’s length commercial transactions, such as swap transactions.
Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products.
"The agency will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice," according to the DOL's announcement.
The new proposed rule, originally anticipated by the end of 2012, now is expected to be issued in the latter half of 2013.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Toni Pilzner, attorney at McDonald Hopkins LLC, says the Department of Labor's effort to expand the definition of a retirement plan fiduciary may increase HR's oversight responsibilities.
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Broader Fiduciary Definition: Legal Update, Wagner Law Group, April 2013
Expected Fiduciary Rules Could Worsen Retirement Crisis, Fidelity Chief Warns, On Wall Street, April 2013
Redefining “Fiduciary”: Why you should care about the Labor Department’s re-proposal of guidelines, plansponsor.com, December 2011
Fiduciary Definition Proposal Being Redefined, Lockton, September 2011
EBSA Regulatory Agenda Focuses on Fees and Fiduciaries, HR News, July 2011
Hearing Debates Concerns with DOL's Fiduciary Proposal, SHRM Online Benefits Discipline, July 2011
Fiduciary Obligations: The Devil’s in the Details, SHRM Online Benefits Discipline, June 2011
DOL's Proposed Definition of 'Fiduciary' Draws Fire, Support, SHRM Online Benefits Discipline, February 2011
DOL Proposed Rule Broadens Definition of 'Fiduciaries' of Retirement Plans, SHRM Online Benefits Discipline, October 2010
Report Suggests Steps to Reduce Fiduciary Liability Lawsuits, SHRM Online Benefits Discipline, August 2010
Fiduciaries Can Avoid Becoming Defendants, SHRM Online Benefits Discipline, June 2010
Retirement Plan Sponsors Unclear on 'Fiduciary Responsibility,' SHRM Online Benefits Discipline, February 2010
SHRM Online Benefits Discipline
SHRM Online Retirement Plans Resource Page