Posted on Jul 31, 2016

In April of this year, the Department of Labor (DOL) issued its final Fiduciary rule, which expands the definition of an “investment advice fiduciary” under the Employee Retirement Income and Security Act of 1974 (ERISA). This rule is also known as the Conflict of Interest Rule. Under the old guidelines, there was a 5-part test to determine if a service provider was a fiduciary. This new rule simplifies that determination process. Basically, any provider receiving compensation for providing advice or recommendations to an ERISA plan, including IRAs, will be deemed a fiduciary. This will include recommendations for investment options, as well as recommendations to roll-over or transfer money into or out of an ERISA plan.

In addition, certain types of compensation like commissions, 12b-1 fees, finder’s fees, and variable compensation, will be prohibited under the new rule, unless the service provider enters into a BIC, or Best Interest Contract, with the client. These BICs will grant prohibited transaction exemptions, but will be extensive documents. Service providers could find them costly to implement.

Even If you work with a level fee-based advisor who already acknowledges their fiduciary status, the new rule could still impact your company’s retirement plan. You will need to monitor service providers and what types of education, advice or recommendations they are providing.

Retirement Plan Industry Update information provided by RPS Retirement Plan Advisors.