The New Fiduciary Rule: Department of Labor Issues First Round of FAQs

The New Fiduciary Rule: Department of Labor Issues First Round of FAQs
Riker Danzig Employee Benefits Alert November 7, 2016


Under the expansive fiduciary rule announced by the Department of Labor in April of this year (the “Fiduciary Rule”), a broader swath of financial institutions, broker-dealers and individuals who provide investment advice to employee benefit plan sponsors, plan investment fiduciaries, plan participants and IRA owners may be considered ERISA fiduciaries required to meet certain standards of care and avoid prohibited transactions arising from conflicts of interest (see our Employee Benefits Alert of April 7, 2016).  

New and amended prohibited transaction exemptions (“PTEs”), including the Best Interest Contract Exemption (the “BIC Exemption”), issued in connection with the Fiduciary Rule are based on a best interest standard to ensure that plan and IRA investors are protected by impartial conduct standards that put the investor’s interests above the advisor’s interests. 


On October 27, 2016 the Department of Labor issued the first of an anticipated three sets of answers to frequently asked questions (“FAQs”) designed to clarify certain points of the Fiduciary Rule and related PTEs.  The first set of FAQs focuses on compliance dates and transition periods, the BIC Exemption and other PTEs.   


The Fiduciary Rule has already had an impact on the investment industry, which must begin to comply with the Rule and related PTEs starting in April, 2017.  As a result, employers and other plan investment fiduciaries can expect that financial institutions, broker-dealers and other investment advisors will be devising new, and revising existing, compensation arrangements designed to ensure compliance.  

Ultimately, employer plan sponsors and other plan investment fiduciaries (such as plan investment committees) will have to make sure that the hiring and retention of plan investment advisors continue to meet ERISA fiduciary standards.  As part of that determination, plan investment advisors should evidence compliance with the Fiduciary Rule and the PTEs on which they rely.

What To Do Now

Although additional guidance in the form of FAQs is expected from the Department of Labor, employers and other plan fiduciaries should begin to review current service agreements in anticipation of changes in compensation arrangements, review plan rollover and distribution procedures to ensure against providing fiduciary investment advice, and document continued monitoring of plan investment advisors and other service providers to evidence ERISA fiduciary compliance. 

For more information on the recently issued FAQs, or if you have any questions about this Employee Benefits Alert, please contact any one of the attorneys in our Employee Benefits and Executive Compensation Practice GroupJames N. Karas, Jr., Robert C. Daleo, or Jason D. Navarino.