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The Fiduciary Rule Update

Ready, Set, Stop, Go – Maybe

After many years of discussion and debate, the Department of Labor (DOL) finalized the fiduciary rule which sets forth a standard for all advisors to act in the client’s best interest when advising on retirement accounts (both employer-sponsored retirement plans and Individual Retirement Accounts – IRA).  Under the current President’s administration, the DOL delayed the effective date until June 9, 2017.


On May 23, 2017, the DOL issued a statement it will not seek any further delays and the rule will go into effect on June 9, 2017.  And to complicate this further, the DOL could end up changing the rule in the future.  With all that said:


What should plan sponsors do to get prepared?


Evaluate any relationship your company has with a financial services company if it makes any “recommendations” about rolling out or transferring a participant’s account from a qualified retirement plan and/or Health Savings Account — if that company or its employees will receive compensation (directly or indirectly) for accepting and/or advising on the accounts.   A “recommendation” like this is considered fiduciary advice under the new rule and requires certain actions and disclosures and no conflicts of interest.


Keep in mind that a “recommendation” does not require anyone to use the word recommendation.  Under the rule, “recommendation” means any communication that can be reasonably viewed as a suggestion to take action or not take action.


As a plan sponsor, you should be aware that giving a financial services company (that makes “recommendations”) access to your employees could be considered an “endorsement”.  If so, you are required to follow a fiduciary process to select and monitor the company that is engaging with your employees.  Even if you tell employees that your company is not endorsing the financial services company, the Department of Labor states that “endorsement” is determined by the facts and circumstances, not by your communications alone.


Avoid any communication by your employees to participants that could be considered a recommendation about what to do with their retirement plan or HSA accounts when they retire or leave your company –if such communication would result in receipt of “compensation” (from the financial services company) that would not have been provided but for the transaction or service.  “Compensation” may be provided directly or indirectly and includes anything of monetary value.  For example, money, gifts, awards, trips and fees for seminars and education programs.


To avoid any complications, it may be easier to provide employees with only the facts about the options under the plan document, i.e., the plan document allows you to rollover your account, take a lump sum distribution or leave the account in the plan.


Understand whether the advisors to your plans accept fiduciary responsibility for their “recommendations”.   ProCourse is a fiduciary to all of our clients.


Understand who benefits from any discussion with your employees, including your own company and its employees.


Most of the duties that are required under this new rule fall on financial services companies.  Consult with your legal counsel, and evaluate the above items to help make sure your company will be in compliance.



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