Compliance

DOL Fiduciary Rule FAQ Further Clarifies Compliance Demands

In general, if a covered service provider will continue after the fiduciary rule to provide services only in a non-fiduciary capacity, or has already effectively disclosed investment advice fiduciary status, no additional disclosure would be required under the 408b(2) regulation.

By John Manganaro editors@plansponsor.com | August 04, 2017

The U.S. Department of Labor (DOL) released a second frequently asked questions document explaining how advisers and plan providers can maintain compliance during the fiduciary rule’s lengthy implementation process.

Matters addressed in this latest FAQ include information “on (1) fiduciary status disclosure issues under the Department of Labor’s ERISA section 408(b)(2) service provider disclosure regulation that applies to ERISA pension plans; (2) whether recommendations to plan participants and individual retirement account (IRA) owners to contribute to or increase contributions to a plan or IRA constitute fiduciary investment advice under the fiduciary rule; and (3) whether recommendations to employers and other plan fiduciaries on plan design changes intended to increase plan participation and contribution rates constitute fiduciary investment advice under the fiduciary rule.”

Concerning the first question, DOL suggests that among other disclosures required under the department’s 408b(2) regulation, if a service provider under a contract or arrangement with an ERISA pension plan reasonably expects that the service provider, an affiliate or a subcontractor will provide services as a fiduciary within the meaning of ERISA section 3(21), the service provider generally has an obligation to disclose to an appropriate plan fiduciary that services will be rendered in a fiduciary capacity.

“In general, if a covered service provider will continue after the fiduciary rule to provide services only in a non-fiduciary capacity, or has already effectively disclosed investment advice fiduciary status, no additional disclosure would be required under the 408b(2) regulation,” DOL says.

The explanation continues: “In the case of a non-fiduciary service provider to an ERISA pension plan that has structured its service contract or arrangement so that it reasonably and in good faith believes that it will not be providing services to the plan that would make it an investment advice fiduciary under the fiduciary rule, the service provider would not be required to disclose investment advice fiduciary status under the 408b(2) regulation. The Department’s conclusion in this regard would not be affected by the fact that it is possible that actions of individual agents, representatives or employees involved in implementing a service contract or arrangement (e.g., call center employees) may exceed, in individual circumstances, contract limits that may result in communications that constitute investment recommendations covered by the fiduciary rule.”

The text of the FAQ document goes into significantly more depth regarding these circumstances.

NEXT: Additional clarifications

Per item two—whether recommendations to plan participants and IRA owners to contribute to or increase contributions to a plan or IRA constitute fiduciary investment advice under the fiduciary rule—DOL says generally the answer is “No.”

“The fiduciary rule generally does not treat communications ‘about the benefits of plan or IRA participation, [and] the benefits of increasing plan or IRA contributions’ as fiduciary investment advice, provided that the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property,” the FAQ reads. The document also provides illustrative examples of such communications that would not constitute fiduciary investment advice under the fiduciary rule.

Finally, on the third matter—whether it would it be investment advice under the fiduciary rule if a person makes recommendations or suggestions to a plan administrator or other plan fiduciary relating to methods to increase employees’ participation in, or level of contributions to, an ERISA plan—DOL again says this is not the case.

“Provided that the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property, the department would not view such communications as investment advice recommendations within the meaning of the fiduciary rule even in cases in which the recommendation is based on specific attributes of the plan or its demographics, such as correlations between participation or contribution rates and specific participant attributes.”

The full FAQ is available for download here

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