What Will — and Won’t — Change with the Fiduciary Rule
With the Labor Department’s fiduciary regulation now final, your clients may well be asking, “So, what does this mean for me?”
A recent analysis by consultant Mercer outlines the following potential impacts.
Sponsors’ interactions with own participants won’t change much.
Certainly not as much as was feared when the proposed regulation was published in 2015. Plan sponsors had been concerned that the proposed regulation could have caused employees to become inadvertent fiduciaries and curtailed their ability to name specific plan investments in asset-allocation models or interactive tools. The final rule provides assurance on that front, unless their jobs involve giving investment advice to plan participants.
Sponsors’ relationships with plan vendors will change some.
Mercer notes that some services that weren’t previously classified as fiduciary investment advice will be under the new rule and that, in response, vendors may either curtail their services to avoid becoming a fiduciary, or seek additional fees to cover compliance costs and potential fiduciary liability. Mercer says that plan costs are likely to go up as a result, along with sponsors’ co-fiduciary obligations.
Participants’ relationships with own advisers could change a lot.
Mercer cites the example of a participant hiring a personal investment adviser to help manage plan investments or provide distribution counseling — who will, under the new regulation, be asked to a sign a best-interest contract (BIC).
Mercer acknowledges that a plan sponsor will not have co-fiduciary liability with such advisers, since they will only be fiduciaries for the participants who have BICs — not the entire plan. However, distribution counseling will now be considered investment advice, so some advisers may become more cautious about recommending rollovers without highlighting the advantages of leaving funds in a qualified plan. “As a result, more terminating participants may leave their accounts in the plan until they are ready to retire or otherwise required to take a distribution,” Mercer says.
One thing that won’t change as a result of the fiduciary regulation: Plan sponsors have same fiduciary duties that applied before the rule was published.