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Haylor Risk Management Blog

New DOL 401(K) Fiduciary Rules

Posted by Financial Services on Aug 15, 2017 10:17:44 AM

After a number of attempts to implement stronger protections for investors who rely on advice from a financial advisor, the U.S. Department of Labor (DOL) issued new rules on April, 2016.  The significant growth of 401K plans and IRAs led the DOL to pursue an update of fiduciary related rules that had not been substantially changed since 1975.

erisaplanemployeestock13.jpgEmployers who sponsor retirement plans are responsible to  make sure their retirement-plan service providers are working in the best interest of their employees.  Reviewing the following frequently asked questions can help you understand and stay compliant with these new standards.

Q:  What is the purpose of the new regulation?

A:  The DOL wants to ensure that financial advisors who provide advice about retirement accounts put their clients' interests first.  Another goal is to require transparency about the cost of investment advice and the cost of financial products recommended by an investment advisor.

Q:  What is the newly expanded definition of fiduciary?

A:  A person provides fiduciary investment advice to a a plan if he or she provides a recommendation regarding investment securities for a fee or other compensation.  Further, fiduciary advice is present if the person making the recommendation indicates he or she is acting as a fiduciary within the meaning of ERISA or the Internal Revenue Code, offers the advice pursuant to a written or verbal agreement that it is based on the specific needs of the recipient of the advice, or directs the advice to a specific recipient.

Q:  What constitutes a recommendation?

A:  It is a communication that would reasonably be seen as a suggestion that the advice recipient take or refrain from a particular course of action.  Quite simply, it is investment advice.  

Free-IT-Consultation.jpgQ:  Would the investment advice rule apply to a transfer or rollover from a previous 401K plan to an employee's current 401K plan?

A:  Yes.  An transfer from the ERISA plan of a participant to another ERISA plan would be covered.

Q:  What should an employer be doing now?

A:  Review your existing relationships with plan service providers to identify who may be treated as a fiduciary.  If your advisor is helping and offering investment advise they should be listed as a co-fiduciary acting as an ERISA 3(21) or 3 (38) fiduciary.

Review any written agreements with service providers to help manage compliance with the new regulations

Review any education materials with your financial advisor to determine if there are inadvertent investment recommendations

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Haylor, Freyer & Coon Financial Services, a registered investment advisor and separate entity from LPL Financial.

For more information on Fiduciary Rules please contact Financial Services  at Haylor, Freyer & Coon, Inc. 


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