Benefits and Compensation

Definitions of ‘Fiduciary’ Will Soon be More ‘Economical’

Employers and plan administrators can have a better understanding of what a fiduciary is, courtesy of Phyllis C. Borzi, Department of Labor (DOL) assistant secretary for the Employee Benefits Security Administration (EBSA). She shed some light on the department’s thought process on this matter at the March 13 ERISA Advisory Council meeting. The DOL’s efforts to re-define “fiduciary” under ERISA have been closely followed, widely discussed and often criticized. Borzi stressed the importance of public feedback in crafting the proposed definition.

The final decision as to who or what may be categorized as a fiduciary could deeply affect the retirement plan industry

The forthcoming re-proposal will have three key pieces, Borzi said: the regulation itself, the accompanying economic analysis and a section on exemptions. She added the new proposal will likely have at least one more exemption than the previous iteration.

Borzi highlighted the importance of the economic analysis portion. The story isn’t done with the re-proposal itself, she said, but with the release of the final economic analysis which shows the reasoning behind it all.

EBSA previously issued a proposed re-definition, but pulled it last fall in the wake of a series of criticisms, promising to issue a new proposed definition sometime this year. According to Borzi, EBSA has addressed every legitimate issue of concern that commenters brought up on the last proposal. She said that EBSA took every meeting requested of it on the matter.

Though Borzi encouraged public comments on the matter, she cautioned that no proposal could possibly please everyone. “Do I think this will be warmly embraced by the individuals as a whole? If I thought that I would try to sell you the Brooklyn Bridge,” she said. She added that this is the most involved regulation that anyone in DOL has ever seen.

The DOL last updated its definition of “fiduciary” 35 years ago. The DOL suggested the rule is out of date, stating it “may inappropriately limit the types of investment advice relationships that give rise to fiduciary duties on the part of the investment advisor.”