DOL releases new fiduciary rule FAQs focused on 401(k) plans

Answers touch on how retirement plan advisers should treat certain disclosures about their status as well as recommendations for increasing plan participation and contributions

Aug 4, 2017 @ 1:30 pm

By Greg Iacurci

The Department of Labor has released a new round of answers to frequently asked questions on the fiduciary rule, focusing primarily on issues affecting defined contribution plans and retirement plan advisers.

The FAQs, released Thursday afternoon, are much shorter than previous tranches, addressing only three questions. The headline issue relates to how retirement plan advisers and other plan service providers should treat certain fiduciary disclosures that might have required updates following June 9, when the fiduciary rule partially went into effect. The DOL also provided guidance on recommendations related to increasing plan participation as well as contributions to DC plans and individual retirement accounts.

As of June 9, the regulation made fiduciaries of thousands of advisers who'd previously been delivering investment advice in a non-fiduciary capacity to retirement savers. That, in turn, triggered a conundrum for previously non-fiduciary advisers servicing DC plans, due to an existing section of the Employee Retirement Income Security Act of 1974 called 408(b)(2). That provision requires service providers receiving compensation from a DC plan to disclose their fiduciary status to clients. These newly minted fiduciary advisers would have had to update their disclosures to represent this new status.

The new round of FAQs addresses this confusion. The DOL said service providers, including advisers, don't need to use the term "fiduciary" to satisfy their updated disclosure requirements, as long as they accurately disclose the services being provided to the client.

To give a sense of the scope of advisers affected: Roughly 225,000 of the 250,000 advisers servicing DC plans are considered "dabblers," working with only a handful of retirement plans, according to The Retirement Advisor University. Anecdotally, the vast majority of these advisers were non-fiduciaries before the DOL's regulation, and would have had to make updates.

"To me, that's a little bit of a Hail Mary safe harbor for service providers who don't want to call themselves fiduciaries," said Duane Thompson, senior policy analyst at fi360 Inc., a fiduciary consulting firm. "I guess some firms abhor the fiduciary [adviser] formally acknowledging fiduciary status, and they'll take advantage of any way to avoid disclosing that status as long as possible."

The DOL said requiring acknowledgement of fiduciary status would be inconsistent with the best-interest contract exemption, the teeth of the fiduciary rule, which doesn't require written acknowledgement of fiduciary status until Jan. 1.

The written disclosure under 408(b)(2) would have been required much sooner than the BICE: "as soon as practicable," or no later than 60 days after June 9.

The DOL, in its new FAQs, called the 60-day disclosure period "impractical" and "unreasonably short," and will consider providers to be in compliance even if the disclosure is made after 60 days.

"The Department is almost saying you have until Jan. 1 to update the 408(b)(2) disclosures," Mr. Thompson said.

He noted a "clear pattern" of the DOL not stressing enforcement of the fiduciary rule during the transition period.

"They're in an education mode until Jan. 1," he said.

Further, those providers who "do not reasonably expect" to be providing fiduciary advice under the rule wouldn't be required to disclose fiduciary status under 408(b)(2), according to the DOL.

The DOL acknowledges these brokers may at times "exceed … contract limits" and provide fiduciary advice, but the DOL wouldn't treat "such unauthorized and irregular actions … as necessitating a disclosure."

"If someone is going to flip over the line inadvertently, it takes the pressure off on that," said David Levine, principal at Groom Law Group.

Separately, the FAQs said service providers encouraging 401(k) plan participants to make plan contributions or increase their contributions would not be providing fiduciary advice. It also wouldn't be fiduciary advice to recommend or suggest to a plan administrator or another plan fiduciary methods to increase employees' participation in or level of contributions to a 401(k) plan.

There's one caveat here, Mr. Levine said: These recommendations can't involve a specific investment product.

The bulk of the Obama-era fiduciary rule, which raises investment advice standards in retirement accounts, is set to come into effect Jan. 1. That could be delayed pending a review by the Trump administration.


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