In an effort to combat perceived conflicts of interest for those rendering retirement planning advice, the United States Department of Labor (DOL) has recently expanded the definition of “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA).
Traditionally, investment brokers have been paid by commissions - hampering their ability to give truly objective advice because their compensation is fully dependent on making a sale. However, under the new rule, those who fall under the fiduciary standard will not be able to receive commissions (unless an exception applies). This change reflects an effort by the DOL to guarantee access to objective retirement planning advice.
Previously only registered investment advisors (RIAs) were subject to a fiduciary standard under ERISA, however, the new definition now includes anyone giving “... advice for a fee or other compensation, direct or indirect...” under the umbrella of a “fiduciary,” meaning that both investment brokers and insurance agents must now comply with the fiduciary standard as well. Expanding this definition means that more people must now follow the fiduciary standard, resulting in an elevated risk of liability for those who were not previously at risk. Consequently, employers who are sponsors of 401(k) plans should use caution to prevent being subjected to liability as a fiduciary under this new rule.
Dallas executive employment lawyer Keith Clouse highlights some important matters for employers who sponsor 401(k) plans to consider:
Employers should re-examine all current relationships with plan service advisors to determine the extent of the advisor’s fiduciary relationship with the offered plans;
Employers should increase oversight of their plan advisors and verify that advisors are only offering advice that is in the best interest of plan participants and beneficiaries;
Employers should ensure that any fees charged to plan participants are proper and fully disclosed;
Employers should be aware that health savings accounts (HSAs) are also now subject to this new rule, therefore HSA advisors must comply with the heightened fee disclosure obligations;
Employers should be aware that the rule still allows plan sponsors and advisors to provide general “investment education,” however, employers should make sure that any educational materials provided to employees does not cross the line and become “investment advice,” thus triggering fiduciary duty obligations. Employers should review any materials being distributed to employees to ensure nothing can be construed as individualized investment advice. Additionally, employers should advise their HR Specialist that any communications regarding plans should be hypothetical, rather than specific.
Although the new rule took effect on June 9, 2017, it still remains in a transition period, with the compliance date set to begin on January 1, 2018. This means the DOL will not pursue claims against fiduciaries who are making a good faith attempt to comply with the new rule and its exemptions until next year. However, employers should work to educate themselves on the new rule and take actions to guarantee compliance in advance of this deadline.
This article is presented by the Dallas employment lawyers at Clouse Dunn LLP. To speak to an employment attorney about an ERISA or a fiduciary duty matter, send an email to email@example.com or call (214) 239-2705.
About Keith Clouse / Dallas Employment Attorney Keith Clouse
Keith Clouse is an employment law specialist with over 25 years of experience representing senior executives, business owners, physicians, and corporations in complex employment litigation, arbitration and negotiations. Senior executives, physicians and other professionals consistently rely on Mr. Clouse for employment law expertise and advice on employment contracts, covenants not to compete, severance agreements, equity awards, trade secret disputes, and breach of fiduciary duty claims. Source CDKLawyers.com
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