New DOL Fiduciary Guidance Mirrors ARA/NAPA GAC’s 408(b)(2) Recommendation

By Craig Hoffman • August 04, 2017 • 0 Comments

The Labor Department has issued a new set of FAQs on the fiduciary regulation that embraces the recommendations made by the ARA/NAPA Government Affairs Committee (GAC) in a recent comment letter.

To recap, the 408(b)(2) regulation requires certain service providers to ERISA-governed retirement plans (including advisors) to make disclosures to plan fiduciaries of their services, compensation and “status,” in the case of the latter if they were fiduciaries under ERISA and/or the securities laws. Up until now, many broker-dealers had taken the position that they were not fiduciaries and therefore did not need to make the fiduciary disclosure. Or had until the fiduciary regulation’s June 9 applicability date, after which many may find their status changing which would then require an update to the 408(b)(2) disclosure.

Generally, a covered service provider must provide an update to the 408(b)(2) notice when there is a change in the information that was previously disclosed. The update must be given within 60 days of the service provider being “informed” of the change. (Although it is not entirely clear what it means to be “informed” of a change, the FAQs indicate it would be no earlier than the June 9 applicability date.) If, however, there are extraordinary circumstances beyond the service provider’s control that preclude distribution within the normal 60-day period, the updated notice must be provided “as soon as practicable.”

The ARA/NAPA GAC submitted a comment letter on June 22, 2017, recommending that the DOL specifically acknowledge that the circumstances surrounding the fiduciary regulation and its ongoing review constitute “extraordinary circumstances beyond the covered service provider’s control.” And that is precisely what the DOL did in the latest round of FAQs. Quoting directly from FAQ 1:

[T]he Department believes that the broad range of service providers who may have experienced changes in fiduciary status as a result of the Fiduciary Rule taken together with the uncertainty regarding the substance and timing of the Department’s past decision on whether to delay the applicability date of the Fiduciary Rule and related exemptions, constitute a unique and extraordinary circumstance beyond the control of current plan service providers that makes a 60-day disclosure period for changes in required 408(b)(2) regulation disclosures impractical and unreasonably short, at least for a significant percentage of affected service providers. Accordingly, in the Department’s view, covered service providers will be in compliance with the timing of the “change in fiduciary status” disclosure requirement in the 408b-2 regulation if they disclose such change, or make a transition period disclosure described above, as soon as practicable after June 9, 2017, even if more than 60 days after June 9, 2017.

The FAQs do not illuminate the meaning of “as soon as practicable.” As result, it will be an individual determination that will depend on the specific facts and circumstances. One would hope and expect DOL will be understanding in any enforcement activity related to this requirement.

The guidance is good news and provides needed clarity. The DOL should be commended for its quick response to the concerns raised by ARA/NAPA GAC with regard to this issue.

Other Answers

One of the questions posed by the Labor Department in its fiduciary regulation RFI was whether encouraging plan participants to either contribute, or to contribute more, to their retirement plans – albeit without recommending any particular investment or investment strategy would constitute fiduciary investment advice under the fiduciary rule.

In the FAQs, the Labor Department said it would not, “provided that the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property.”

They also provided four “illustrative examples of such communications.”

Similarly, the Labor Department said that it would not be considered investment advice under the fiduciary rule if a person makes recommendations or suggestions to a plan administrator or other plan fiduciary relating to methods to increase employees’ participation in, or level of contributions to, an ERISA plan — as long as the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property — even in cases in “which the recommendation is based on specific attributes of the plan or its demographics, such as correlations between participation or contribution rates and specific participant attributes.”

Craig Hoffman is the American Retirement Association’s Director of Regulatory Affairs.





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