Are There (Still) Limits on Contribution Recommendations?

Recent FAQs from the Labor Department regarding the fiduciary regulation offered much-needed clarity on the ability to encourage contribution increases without triggering fiduciary responsibility – but Fred Reish cautions there may be “traps for the unwary.”

In his most recent blog post on the fiduciary regulation (58, but who’s counting?), Reish notes that in his previous blog post he discussed the DOL’s position that recommendations of contributions to plans and IRAs were fiduciary advice – less than a week before he says the Labor Department “reversed its position” in new guidance as part of the DOL’s “Conflict of Interest FAQs (408(b)(2) Disclosure Transition Period, Recommendations to Increase Contributions and Plan Participation).”

In those FAQs, Reish cites the text from question 2:

Q2. Plans and their service providers often encourage plan participants to make contributions to the plan at levels that maximize the value of employer matching contributions or to otherwise increase participants’ contributions or savings to meet objective financial retirement milestones, goals, or parameters based upon the participant’s age, time to retirement or other similar measures, without recommending any particular investment or investment strategy. Would it be fiduciary investment advice under the Fiduciary Rule to encourage additional savings or contributions to a plan or IRA in this manner? 

In the FAQs, the Labor Department said it would not, “provided that the information and materials do not include recommendations with respect to specific investment products or recommendations with respect to investment management of a particular security or other investment property.”

However, Reish goes on to explain that in the guidance the Labor Department says that the recommended increase must be “objective.”  But that he cites as examples non-fiduciary recommendations to increase contributions:

  • to obtain the full benefit of an employer’s matching contributions, or
  • to meet objective financial retirement milestones, goals, or parameters based upon the participant’s age, time to retirement or other similar measures, such as to achieve a retirement income replacement goal.

Reish also explains that a recommendation to increase contributions is non-fiduciary advice where it is made “without recommending any particular investment or investment strategy,” cautioning that if the recommendation to increase contributions to a plan or IRA is made during a conversation that also includes a discussion of the investments, that could cause the recommendation to be fiduciary advice.

So – while there remain issues of which to be aware – “traps,” Reish says – he also acknowledges that that the Labor Department’s current position is a “significant improvement.”

Post a Comment

Your email is never published nor shared. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Send this to a friend