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DOL Unveils New Fiduciary Rule to Update Fiduciary Status Under ERISA

On October 31st, the Department of Labor published its long-awaited proposed rule to amend who would be subject to ERISA’s fiduciary standard when providing investment advice regarding retirement plan assets.

For many years, this determination was made based upon a list of requirements referred to as the “Five Part Test.” Specifically, a person would be deemed to have acted in a fiduciary capacity when: (1)Rendering advice or making recommendations to a plan regarding investments; (2) on a regular basis; (3) pursuant to a mutual agreement or understanding with the plan; (4) where the advice served as the plan’s primary basis for making an investment decision; and (5)the advice was individualized to the plan’s specific needs.

In recent years, the Department of Labor has attempted to amend these requirements above on several occasions, only to have them struck down by the courts. For example, the Department enacted sweeping changes to ERISA’s “fiduciary rule” in 2016, only to have the rule struck down by a federal court. More recently, the Department issued Prohibited Transaction Rule 2020-02, which sought to require anyone providing advice to retirement plans, their participants, or IRA owners to comply with a “best interest standard.” However, that regulation was also challenged, and several federal courts have issued rulings striking down specific applications of the rule.

On October 25th, the Department issued its proposed “Retirement Security Rule” at the White House. In a Fact Sheet in support of the proposed rule, President Biden argued the regulations are necessary to reduce the “junk fees” that serve as a drag on employees’ ability to save for their retirement. Specifically, the President outlined three important provisions of the proposed rule:

  1. It would close loopholes to require recommendations regarding the purchase of any investment product to be made in investors’ best interests.
  2. It would expand the definition of advice to include recommendations made to a plan participant regarding the possibility of rolling their assets out of an employer-sponsored retirement plan.
  3. It would require advisers to comply with the “best interest standard” when providing recommendation as to which investments plan sponsors should include on the investment options offered to plan participants.

The New Fiduciary Rule includes hundreds of pages of commentary accompanying the “Retirement Security Rule” and several related rule proposals. This review will take time for many to examine these materials and time for the DOL to provide guidance on how to proceed.

This new rule broadened the scope of who is a fiduciary. At OneDigital, we have always considered ourselves as acting in a fiduciary capacity when providing any investment advice to our plan clients, their participants, and IRA owners, always putting our client’s best interests first. Therefore, the DOL’s efforts to impose that standard on everyone who provides advice to retirement plan investors is a change we do not oppose. This proposed rule will have a more significant impact on those business that have not already leaned into the fiduciary status/title.

Want to learn more about upcoming legislative and compliance changes? Check out this upcoming webinar: Need-to-Know Quarterly Compliance Recap for employers [2023 – Q3 Review].

Investment advice offered through OneDigital Investment Advisors LLC, an SEC-registered investment adviser and wholly owned subsidiary of OneDigital.