DOL Seeks To Improve Availability Of Retirement Investment Advice


by Caroline Nelsen

cnelsen@mcgrathnorth.com
(402) 341-3070

In an effort to improve the variety of retirement plan investment options available to workers and retirees, the Department of Labor (DOL) recently published a proposed class exemption that would place investment advice fiduciaries under a retirement plan or individual retirement account (IRA) into an exempt class, free from previous restrictions on receiving compensation generated by self-dealing, third-party payments, and principal transactions.

What’s the catch? Investment advice fiduciaries must continue to act in the best interest of the workers and retirees under the Plan.

What’s new? The current rules under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (the Code) consider it a “prohibited transaction” for a retirement plan fiduciary to receive certain compensation generated by investment advice given to plan participants. The DOL’s proposal, if adopted, puts investment advice fiduciaries in an exempt class under ERISA and the Code and allows them to receive compensation that may stem from investment advice given to workers and retirees. The proposed exemption also allows investment advice fiduciaries to receive compensation resulting from advice to roll over assets from a Plan to an IRA.

What Standards Apply to the Fiduciaries? The DOL recognizes that there must be a system in place to ensure that investment advice fiduciaries are acting in the best interest of the plan participants when giving any advice that may result in a monetary benefit to the investment advisor. The DOL proposes that, in order for an investment advice fiduciary to qualify under the exemption, they must abide by the Impartial Conduct Standards that include the following: (1) a best interest standard; (2) a reasonable compensation standard; and (3) a requirement to make no materially misleading statements.

Who May Benefit from the Class Exemption? Under the proposed exemption, a wide range of institutions and professionals that provide fiduciary investment advice to workers and retirees may take advantage of the class exemption. Investment advisors, broker-dealers, banks, and insurances companies and their employees, agents, and representatives could all receive a variety of payments stemming from the investment advice given to workers and retirees, assuming they act in accordance with the Impartial Conduct Standards.

The DOL will take written comments from the public regarding the proposed exemption and may modify the contents of the proposal before issuing a final rule.

If you have any questions about this proposed exemption or how it may impact you or your company, please reach out to a member of the McGrath North Employee Benefits Group.

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