President directs reconsideration of DOL retirement plan fiduciary duty rule



February 06, 2017

Benefits Law Alert

Author(s): Thomas J. McCord, Brian Kopp

President Trump has issued a memorandum directing the Secretary of Labor to review and consider revising or repealing the Department of Labor’s recent regulation expanding ERISA’s definition of fiduciary. This regulation has had a widespread impact on the financial community, as well as the relationship of retirement plan sponsors to their plan record keepers and financial advisors. Employers should consider using any period of review to examine their relationship with plan record keepers and advisers and the investment-related services they provide to plan participants.

President Trump issued a memorandum directing the Secretary of Labor to review and consider revising or repealing the Department of Labor’s (DOL’s) recent regulation expanding ERISA’s definition of fiduciary. This regulation has had a widespread impact on the financial community as well as the relationship of retirement plan sponsors to their plan record keepers and financial advisors.

In 2016, the DOL finalized a new regulation expanding who is a “fiduciary” to a retirement plan. This regulation is important because plan fiduciaries are required to avoid conflicts of interest and act in the best interest of plan participants especially when advising plan participants on investment options and rollover decisions. This regulation, known as the Fiduciary Duty Rule, was scheduled to become effective in April 2017. In anticipation of this effective date, many record keepers and investment advisors have been revisiting their services to determine if they will be treated as fiduciaries under the new rule. In some cases, the service providers have changed their compensation structures and revised their service agreements in anticipation of the new rule.

On February 3rd, President Trump issued an executive memorandum directing the Secretary of Labor “to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice” and to consider rescinding or revising the Fiduciary Duty Rule. The acting Secretary of Labor responded that the DOL “will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”

Given the broad direction in the executive memorandum and the response of the DOL, there are now serious doubts whether the Fiduciary Duty Rule will go into effect as scheduled in April 2017. Whether the Fiduciary Duty Rule will thereafter be revised or simply abandoned is unknown, but the process of re-proposing any new regulation could take more than a year.

Even without regard to the new regulation, there has been increased scrutiny of the services record keepers and investment advisors provide to plan participants. Accordingly, even though the future of the Fiduciary Duty Rule is unclear, retirement plan sponsors should consider examining the services provided by plan record keepers and investment advisors to determine whether their services and guidance, particularly in connection with investment selection and rollover distribution decisions, are being provided in the best interests of plan participants.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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