The DOL’s New Fiduciary Rule

The new fiduciary rule issued yesterday by the Dept. of Labor, which is designed to address conflicts of interest among financial advisers, will require HR departments to review their arrangements with vendors that provide retirement-plan services, say experts.

“The definition of ‘fiduciary’ is being expanded, and HR will need to determine if they have vendors that will now fall under this category,” says Robert Kaplan, associate attorney in Ballard Spahr’s employee benefits and executive compensation group.

The rule is designed to protect the best interests of retirement-plan participants and sponsors by applying the “fiduciary standard” to all those who provide investment advice in order to prevent conflicts-of-interest, which the White House Council of Economic Advisers says costs retirement savers $17 billion a year.

In many cases, vendors that provide services for employer-sponsored retirement plans that hadn’t been fiduciaries before the new rule – such as broker-dealers, mutual-fund representatives, etc. – will be considered fiduciaries once the new rule takes effect (it goes into final effect on April 1, 2018, with a “transition period” starting April 1, 2017). HR will need to carefully evaluate all advisers that provide services to their organization’s retirement plans to determine whether they’ll now be considered fiduciaries, says Kaplan.

For example, many 401(k) record-keepers offer “reach out” campaigns targeted at plan participants (including former employees who still have accounts in the company plan) who may be considering whether to rollover funds from a 401(k) plan into an individual retirement account. Today these services only need to meet a “suitability” standard, says Kaplan; under the new rule, they must meet the fiduciary standard.

Much of the compliance duties for the new rule will be handled by vendors and record keepers, says Kaplan. However, in a few instances HR may encounter vendors that refuse to recognize that they will now be considered fiduciaries – in such cases, HR will need to terminate the relationship, he says.

“There are some less-than-reputable vendors that don’t want to be held to the fiduciary standard, and they will probably be driven out of the business,” says Kaplan.