Benefits

Exception to the Rule: Understanding the DOL Fiduciary Rule

In part one of this article, we covered the roles and responsibilities of a plan fiduciary and evaluated the new U.S. Department of Labor (DOL) fiduciary rule’s impact, even though full implementation has been delayed—extended to July 1, 2019. In this article, we’ll cover the exception to the fiduciary rule, as well as some steps employers can take to ensure the new DOL fiduciary rule is being properly adhered to.

retirement

NiroDesign / iStock / Getty Images Plus

Exception to the Rule

Under the fiduciary rule, a party transacting business with an independent fiduciary of a plan in an arm’s-length transaction is excepted from the rule if certain disclosure and fee requirements are met and the party reasonably believes that the independent fiduciary of the plan (a bank, insurance carrier, or registered broker-dealer or investment adviser) is an independent fiduciary that manages or controls at least $50 million.

In this case, the independent fiduciary is considered a sophisticated fiduciary capable of evaluating investment risks impartially, both in general and as they relate to specific transactions and investment strategies.

For the exception to apply, the plan fiduciary—whether the plan committee or someone contracted by the plan—must be independent of the adviser and have no relationship that would hinder the ability to make an impartial decision.

Further, the adviser has to disclose that he or she is not looking to provide impartial advice or to give advice in a fiduciary capacity regarding the transaction, as well as fairly inform the plan fiduciary of the existence and nature of his or her financial interests. Finally, the adviser is not to receive a fee or other compensation from the ERISA plan or plan fiduciary.

 

Practice Tip

Going forward, plan fiduciaries and their legal counsel will want to closely review provisions in written agreements with investment advisers or consultants, especially those seeking to satisfy the independent fiduciary exception.

 

Though the phased implementation period ultimately may be further extended, plan sponsors will want to become familiar now with the new fiduciary rule and exemptions, as well as the exception. While attempts by advisers to avoid fiduciary responsibility are not new, the investment adviser currently can avoid acceptance of fiduciary responsibility and hope that it stays with a sophisticated plan fiduciary by incorporating the exception’s terms into his or her agreements.

Suggested Steps

Some final suggestions for employer plan sponsors working to ensure the new DOL fiduciary rule is being properly adhered to at their organizations:

  • Make sure that all members of the plan’s committee understand that they are plan fiduciaries.
  • Schedule fiduciary training to help refresh the roles and responsibilities and clarify the nuances of the new rule.
  • Identify service providers that have expressly stated they are fiduciaries, and review agreements that are not clear as to the provider’s fiduciary status.
Arris Reddick MurphyArris Reddick Murphy is an attorney with experience in the employee benefits and executive compensation practice area, and she is senior counsel with FedEx Corp.’s Tax & Employee Benefits Law group. Before joining FedEx, she held the position of associate with the law firm of Potter Anderson & Corroon, LLP, and worked in-house with The Vanguard Group and the City of Philadelphia as counsel to its Board of Pensions and Retirement. She is contributing editor of The 401(k) Handbook.