FIS Relius
Major Developments in Fiduciary Rule 8/14/2017
Email This Link

By S. Derrin Watson, Esq.

(Note: The following is a guest column from S. Derrin Watson, Esq.  Mr. Watson will be speaking at the upcoming Chicago Advanced Pension Conference.)

There are two recent developments regarding the DOL fiduciary advisor regulation, sometimes known as the conflict-on-interest regulation (the Fiduciary Rule).

Extended Transition Period

1. The DOL has submitted to the Office of Management and Budget a delay in applying the full requirements of the Best Interest Contract exemption (BIC), and two related prohibited transaction exemptions.  The full requirements have been scheduled to go into effect January 1, 2018.  The DOL plans to push that back to July 1, 2019, a delay of 18 months.

Significantly, the delay leaves the Fiduciary Rule itself in place. It went into effect June 9, 2017. Also in place and extended is the transition period rule under the BIC.  To avoid prohibited transactions, newly minted advisor fiduciaries and their financial institutions must adhere to the following transition rule requirements:

·         They must perform their duties prudently and in the exclusive interest of the participants,

·         Their statements must not be materially misleading, and

·         They may not receive more than reasonable compensation.

Previously, the BIC transition rules required a one-time disclosure of the institution’s fiduciary status and practices.  However, in April when the DOL extended the application date of the fiduciary rule by 60 days (to June 9, 2017), the DOL removed that disclosure requirement from the transition rule.

2. The DOL has issued FAQs explaining the interaction of the Fiduciary Rule with the service provider fee disclosure rules (the 408b-2 rules), and clarifying that certain statements are not recommendations subject to the Fiduciary Rule.

Coordination with Service Provider 408b-2 Disclosures

The Fiduciary Rule can impact the 408b-2 disclosures because covered service providers who provide (or expect to provide) fiduciary services must affirmatively state that they are acting as such. The FAQs addresses this in several different situations, best explained with examples:

Example 1:  A service provider has structured its arrangement with a plan such that the provider reasonably concludes it is not a fiduciary under the Fiduciary Rule. The provider need not make a 408b-2 disclosure regarding fiduciary status, even though it is possible an individual agent or call center employee may act outside that structure and give what amounts to fiduciary investment advice.

Example 2: A service provider is entering into a service arrangement and concludes that it is or may be a fiduciary under the Fiduciary Rule.  During the transition period (which is being extended to July 1, 2019), the service provider need not state that it is acting in a fiduciary capacity in making the 408b-2 disclosures.  Instead, the provider must furnish “an accurate and complete description of the services that will be performed under the . . . arrangement with the plan, including the services that would make the covered service provider an investment advice fiduciary under the . . . Fiduciary Rule.”

Example 3: A service provider previously delivered to the plan a 408b-2 disclosure which affirmatively stated that the provider is not a fiduciary.  The provider concludes that it is an investment advice fiduciary under the Fiduciary Rule, and therefore as of June 9 that disclosure was incorrect.  The provider must correct the 408b-2 disclosure, either by removing the statement (and providing the service disclosure described in Example 2) or by saying the provider is acting as a fiduciary.

The FAQs also address the timing of corrections to 408b-2 disclosures. Normally, the deadline for a change notice is as soon as practical, but in no event later than 60 days after the provider is informed of the change. The FAQs start the 60-day clock on June 9. More importantly, the FAQs conclude that the normal deadline is too short for many service providers, in light of the confusion regarding the DOL’s review of the regulation.  Accordingly, the change notice will be considered timely if given ASAP, even if that is after the normal 60-day deadline (August 9).  Change notices can be provided electronically, including via a website reasonably accessible to the plan.

The FAQs note that many providers have already communicated with their customers about the Fiduciary Rule and corresponding changes in services and operations.  The DOL expects those communications will frequently be sufficient to function as change notices for purposes of the 408b-2 rules.

Communications That Aren’t Investment Advice Recommendations

Generally, recommendations to increase deferrals, or advice to an employer on plan provisions or operations to increase deferrals or contributions, are not investment advice recommendations subject to the Fiduciary Rule. However, they could be investment advice recommendations if they include recommendations of specific investment products or investment management.  The FAQs give several examples of communications that would not be recommendations subject to the Fiduciary Rule:

·         A targeted email recommending that a participant increase deferrals to meet retirement goals,

·         A phone call recommending that a participant increase deferrals to take advantage of the full employer match,

·         A brochure that recommends individuals save 15%/year, including deferrals and matching contributions, or

·         A discussion with a plan sponsor recommending the adoption of automatic enrollment at a specific percentage as a means of increasing plan participation.

We will address this topic in the Chicago Advanced Pension Conference, September 6-8. See below for details.


Chicago Advanced Pension Conference - September 6-8 – Seats still available

You may see the complete list of topics and register online, here:

Form 5500 Workshop and ERISA Workshop – Starts this week!

Presented back-to-back: Kansas City on August 17-18, Milwaukee on August 21-22, and Seattle on September 14-15.

Attendees can earn up to 7 CE credits for each 1-day session. Register online, here:

403(b) Plans for 401(k) Administrators Workshop and

403(b) Prototype Document Workshop (2-day program)

Registration is open!
Presented back-to-back -- Denver on October 9-10-11, Kansas City on October 9-10-11, Atlanta on October 16-17-18, Chicago on October 16-17-18, Boston on October 30-31-Nov 1, Dallas on October 30-31-Nov 1, Portland on November 6-7-8, and Pittsburgh on November 13-14-15.  

Details and online registration, here: