Fiduciary Rule Considerations for Plan Sponsors

There are certain things retirement plan sponsors can still do under the Department of Labor’s (DOL’s) new fiduciary rule that are not fiduciary acts.

For example, the education carve out allows for specific plan funds to be mentioned in general employee meetings, as long as all funds in the same category are mentioned (see “What Plan Sponsors Should Know About the Final Fiduciary Rule”).

In addition, Steve McCaffrey, senior counsel at National Grid USA Service Company and chair of the Plan Sponsor Council of America (PSCA) board of directors, told attendees of the PSCA Annual Conference that it is OK under the fiduciary rule to tell terminating or retiring employees that they have the option to keep assets in the plan, and why they may want to do so. “The DOL considers this in the best interest of participants and not a recommendation,” he said.

The idea of what is a recommendation needs some clarification. According to Christopher L. Robino, vice president and Employee Retirement Income Security Act (ERISA) counsel at Boston Financial Data Services, under the rule, every recommendation is a fiduciary act. The rule says a recommendation is what a reasonable person would consider to be a call to action. “It’s a grey area and needs to be clarified by the DOL,” he said. The PSCA asked the DOL to provide examples in its rule and hopes the agency will include them in further guidance.

Rich McHugh, of counsel at Porter Wright Morris & Arthur LLP and vice president of Washington Affairs at the PSCA, said some plan sponsors are hesitant to provide access to advice to employees for fear of becoming a co-fiduciary for advice under the rule. There are many levels of guidance and advice, and employers should choose the levels they are comfortable with.

NEXT: Action steps for plan sponsors and recordkeepers

McCaffrey suggested that plan sponsors talk to their attorneys about all provider agreements. They should look at what services providers and advisers are rendering and determine if the new rule makes them fiduciaries.

Robino added that contracts have to specific whether advisers or providers are fiduciaries. And, if there are liability exemptions in the contracts, those have to come out.

According to McCaffrey, plan sponsors should also look at indemnification provisions in the contracts and get more indemnification for themselves.

Fourteen percent of retirement plan providers surveyed by SPARK Institute believe they will become an ERISA fiduciary for the first time under the new regulations. Robino noted that recordkeepers do not want to be fiduciaries, but he feels they will not stop offering services, they will just scale back or change delivery of those service.

In addition, recordkeepers will need to train their call center representatives to talk in a more narrow way. “This may be a frustration for some participants, but the call center can still add value,” Robino said.

McCaffrey concluded that retirement plan participants will benefit from this rule because the DOL will surely enforce it.