On April 6, the Department of Labor (DOL) released its final fiduciary rule. The DOL states that the rule “will protect investors by requiring all who provide retirement investment advice to plans and IRAs to abide by a ‘fiduciary’ standard—putting their clients’ best interest before their own profits.”
Although parts of the rule will start to take effect in April of 2017, it won’t go into full effect until January 1, 2018.
Under the final rule, a fiduciary is defined as any individual receiving compensation for providing advice with the understanding it is based on the particular needs of the person being advised or that it is directed to a specific plan sponsor, plan participant, or individual retirement account (IRA) owner. These decisions can include what assets to purchase or sell and whether to rollover from an employer-based plan to an IRA.
These fiduciaries must offer advice that is in the best interests of plan participants and beneficiaries, disclosing any potential conflicts of interest. Failing to do so means that advisors, and the plan sponsors that hire them, could be sued by plan participants and face penalties under the Employee Retirement Income Security Act (ERISA).
As a plan sponsor, you should take the following steps to ensure compliance with the new rule:
- Ask your financial services advisor if they are considered a fiduciary to your plan, and document your question and their response.
- Consult with an ERISA attorney to ensure your 401(k) plan advisors are adhering to the new rule.
- Ensure that all fees are reasonable.
- Advisors and plan sponsors can still provide general education to employees about their retirement plans without triggering fiduciary duties, such as plan information and general financial, investment and retirement information.
*This article is written for informational purposes only and should not be construed as providing legal advice.