What the DOL FAQs Did Not Do

The recent DOL FAQs provided relief in situations where an advisor provided a non-fiduciary service to an ERISA plan prior to the applicability date of the fiduciary regulation, but became a fiduciary on June 9 solely because of the change of definition. However, there are situations that the FAQs did not address.

In his most recent blog post on the fiduciary rule, noted ERISA attorney Fred Reish notes that if an adviser (or his or her supervisory entity) was a fiduciary – either functional or acknowledged – before June 9, but did not give a 408(b)(2) notice of fiduciary status, that is not covered by the DOL guidance since the regulation didn’t change their obligation.

Secondly, Reish explains that the relief does not cover new relationships with retirement plans after June 9. That is, if an adviser started working with a new plan after June 9 and the adviser is a fiduciary under the new regulatory definition, that would need to be acknowledged in the 408(b)(2) disclosures given to the plan fiduciaries. Finally, if the adviser’s prior 408(b)(2) disclosures, or agreement, stated that the adviser (and his or her supervisory entity) is not a fiduciary, then relief is not provided and a disclosure must be given, according to Reish.

As we reported previously, the DOL’s relief does apply if an adviser provided a non-fiduciary service to an ERISA plan prior to June 9, but became a fiduciary on June 9 solely because of the change of definition. However, the relief from disclosing the new fiduciary status only applies if “the covered service provider furnishes an accurate and complete description of the services that will be performed under the contract or arrangement with the plan, including the services that would make the covered service provider an investment fiduciary under the currently applicable fiduciary rule.”

In other words, Reish explains, the covered service provider (for example, a broker-dealer) must provide an accurate and complete description of its fiduciary services. Reish notes that in his experience “few – if any – broker-dealers made that representation in their previous 408(b)(2) disclosures (since it would have resulted in fiduciary status under the old rules).” Consequently, he says it is “likely that advisers, and their supervisory entities, will need, at the least, to give more detailed descriptions of their services in order to take advantage of the 408(b)(2) relief.”


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And, he cautions, “that should be done as soon as possible,” acknowledging that technically, the DOL FAQs say that these disclosures should be made “as soon as practicable after June 9, 2017, even if more than 60 days after June 9, 2017.”

Even then, he notes that the requirement for the 408(b)(2) fiduciary notice is only delayed until the applicability date of the final exemptions (the Best Interest Contract Exemption and the Principal Transactions Exemption), and that if the fiduciary definition remains the same (or substantially similar), the pre-June 9 ERISA 408(b)(2) disclosures will need to be updated at that time to declare fiduciary status.

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