On August 4, 2017, the DOL released another set of Frequently Asked Questions (“FAQs”) addressing certain provisions of its voluminous new fiduciary rule, which became generally effective on June 9, 2017. Here are the highlights of these FAQs:
- Section 408(b)(2) of ERISA requires contracts between service providers and ERISA plans to be reasonable and to prohibit service providers from receiving more than reasonable compensation. Under DOL regulations published pursuant to that Section 408(b)(2), “covered service providers” (which includes various fiduciary and non-fiduciary service providers) to ERISA plans must make certain disclosures to the plans regarding services to be provided and compensation the covered service provider expects to receive in connection with its plan-related conduct. The DOL intends that disclosure requirement to ensure that plan fiduciaries have the information they need to select and monitor service providers. In this regard, the new FAQs provide that if a covered service provider will continue to provide services only in a non-fiduciary capacity, or if such provider has already effectively disclosed its investment-advice-related fiduciary status under the 408(b)(2) regulation, then no additional disclosure is required under the 408(b)(2) regulation. However, individuals and firms who are fiduciaries under the new fiduciary rule must now provide certain information to their ERISA plan clients (e.g., a complete description of the services that will be performed under the contract or arrangement, including the services that would make the covered service provider an investment advice fiduciary under the new fiduciary rule).
- Plans and their service providers frequently encourage plan participants to make contributions at certain levels, such as to maximize the value of employer matching contributions, without recommending any specific investment or investment strategy. The FAQs state that such encouragement does not constitute fiduciary investment advice under the new fiduciary rule.
- The FAQs address the following situation: a person makes recommendations or suggestions to an ERISA plan administrator or other plan fiduciary relating to methods for increasing employees’ participation in (or level of contributions to), an ERISA plan. The FAQs state that such conduct does not constitute investment advice under the new fiduciary rule, as long as the information and materials do not include recommendations with respect to specific investment products. That is the case even when the recommendations are based on specific plan attributes or demographics.
You can access the FAQs via the following link: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period-2.pdf
Also, on August 9, 2017, the DOL submitted a notice of administrative action to the U.S. District Court for the District of Minnesota. (That court is hearing a case addressing the validity of the new fiduciary rule’s Best Interest Class Exemption’s anti-arbitration provision.) The notice of administrative action states that on August 9, 2017, the DOL submitted to the Office of Management and Budget a “proposed amendment.” Under that proposed amendment, certain provisions of the new fiduciary rule’s following prohibited transaction exemptions (“PTEs”) will not become effective until July 1, 2019: (1) Best Interest Contract Exemption (PTE 2016-01); (2) Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); and (3) Exemption for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24). This extension comes on the heels of the DOL’s April 7, 2017 announcement that the applicability date for certain provisions of the above-referenced PTEs would be delayed to January 1, 2018.
Here is a link to the DOL’s notice of administrative action: https://benefitslink.com/src/ctop/DOL_Thriventfiling_08092017.pdf
Plan sponsors should continue to ensure that they are aware of whether plan service providers are acting in a fiduciary capacity under the new rules. This awareness will likely include reviewing providers’ contracts with respect to specific investment services provided.