Updated: Dec 14, 2018
The DOL Rule is Dead On June 21, 2018 the 5th Circuit Court of Appeals vacated the requirements of the U.S. Department of Labor’s (DOL) Conflict of Interest Rule—more commonly referred to as the “DOL Fiduciary Rule”—thus killing the rule entirely. Despite this news, the death of the DOL Fiduciary Rule does not alleviate a plan sponsor from being a fiduciary when sponsoring an ERISA-covered retirement plan, such as a 401(k).
The primary purpose of the DOL Fiduciary Rule was two-fold: 1) Broaden the existing definition of investment advice; and 2) Ensure that financial advisors and other professionals who provide investment advice on ERISA retirement plan and IRA assets do so absent any conflicts of interest—basically making all financial advisors who work with these types of assets ERISA fiduciaries. Note, many financial advisors today do not act as an ERISA fiduciary to their client’s retirement plan, because they are just providing investment education. However, some advisors do provide investment advice and will put in writing that they are acting as an ERISA fiduciary to the plan.
What This Means for Plan Sponsors So how does the demise of the DOL Fiduciary Rule affect plan sponsors? It basically has little-to-no impact on a plan sponsor’s existing fiduciary responsibility. According to the DOL’s Meeting Your Fiduciary Responsibilities any individual who uses “discretion in administering and managing a plan or controlling the plan’s assets makes that person a fiduciary to the extent of that discretion or control.” The following are common fiduciary activities:
Selecting, monitoring or replacing plan investment options
Hiring, monitoring or firing of a plan service provide (e.g., recordkeeper, TPA, financial advisor)
Timely depositing participant deferrals from their paycheck into the plan’s investment options
Investing participant monies in the absence of a participant’s affirmative investment instructions (i.e., selecting a default investment option)
Interpreting plan document provisions (e.g., determining if a loan or hardship withdrawal meets the plan’s definition)
Who is a Fiduciary? Every ERISA plan must have a “named fiduciary” listed in the plan’s governing documents, and most often the employer is identified as the named fiduciary. But the named fiduciary can also be identified by individual employee name(s), position title(s) (e.g., CFO, CEO) as well as by committee (e.g., investment committee, plan committee). Named fiduciaries may also outsource their specific fiduciary functions to third parties who have the desired expertise to assist with plan administration, investments and management responsibilities. Note, even though certain functions may be outsourced, the named fiduciary still bears ultimate fiduciary responsibility for oversight of the plan and any outsourced fiduciary responsibilities.
But beware. Any person who acts or possesses fiduciary-like powers (i.e., exercises discretionary control over plan’s management or assets) can be deemed to be a “functional fiduciary”, whether or not said person is listed as a named fiduciary. Therefore, it’s imperative that plan sponsors identify all individuals within their organization who are considered an ERISA fiduciary.