On April 6, 2016, the Department of Labor (DOL) released the final fiduciary regulation that had been issued as a proposed regulation in April of 2015. In general, the regulation redefines the term fiduciary as it relates to discussions around retirement investments. The new definition is very broad. The original five-part test, which was first introduced decades ago, is being replaced by a functional test to determine whether an individual is an ERISA fiduciary.
The regulation seeks to require more retirement investment advisors to put their client’s best interest first, by expanding the types of retirement investment advice covered by fiduciary protections. The requirements apply to investment recommendations made to qualified plans, plan participants and IRA owners. Discussions about plan distributions and IRA rollovers are now considered fiduciary advice.
Changes were also made to the fiduciary prohibited transaction rules, essentially impacting how advisors will be able to be paid around their recommendations. Compensation will now need to be levelized or will need to meet the conditions of a prohibited transaction exemption.
The final rule is generally effective April 10, 2017 but some requirements will not be effective until January 1, 2018. The regulation is over 1,000 pages, and as a result, it is still being reviewed by service providers and their attorneys. Plan sponsors should reach out to their providers to determine when they will be releasing guidance on how the new rule could impact how they interact with plan participants.