ARA Seeks DOL Guidance on ‘New’ Fiduciary Disclosure

By Nevin Adams • June 22, 2017 • 0 Comments
There’s an old regulation that has new meaning under the new fiduciary regulation — and it could catch new fiduciaries, as well as broker-dealers by surprise.

That “old” regulation is the 408(b)(2) regulation which, beginning in 2012, required that service providers to ERISA-governed retirement plans (including advisers) make written disclosures to plan fiduciaries of their services, compensation and “status,” in the case of the latter if they were fiduciaries under ERISA and/or the securities laws. Up until now, many broker-dealers had taken the position that they were not fiduciaries and therefore did not need to make the fiduciary disclosure. And if they were not in fact fiduciaries, those disclosures worked from July 1, 2012 until — well, June 9, 2017 — when the new fiduciary regulation made them fiduciaries under certain conditions.

Request for Guidance

In view of the potential issues and confusion that could result from this new combination, the American Retirement Association has requested interpretative guidance from the Labor Department with regard to this obligation of a covered service provider to disclose a change in the information required to be disclosed under ERISA Section 408(b)(2). Specifically, the ARA has recommended that the DOL issue interpretative, sub-regulatory guidance that recognizes the Department’s ongoing review of the rule, the associated uncertainty as to the final parameters of the rule and related exemptions and the potential for confusion by plan sponsors are extraordinary circumstances beyond the control of covered service providers which would preclude the immediate distribution of an updated 408(b)(2) notice; and furthermore that the DOL’s guidance:

  • indicate that as a result of these extraordinary circumstances, a covered service provider who provides an updated 408(b)(2) notice no later than the first calendar quarter of 2018 will be deemed to have provided the notice as soon as practicable;

  • clarify that even in the absence of extraordinary circumstances, a covered service provider is not “informed” of a change in the information required “…until such time as a recommendation is actually given that constitutes “fiduciary investment advice”; and

  • provide that the omission of an updated 408(b)(2) notice may be corrected through the provisions of Reg. §2550.408b-2(c)(1)(vii).

The ARA comment letter is online here.