While advisors, broker-dealers, and RIAs continue to make preparations for the new fiduciary regulation, what might those changes mean for plan committees?
In a recent ERISA Law Newsletter by the Wagner Law Group, ERISA attorney Marcia Wagner explains that, at least at its narrowest scope, the new fiduciary rule would have no effect on plans that already have strong retirement plan committees comprised of qualified internal representatives aided by independent fiduciaries.
More specifically, she notes that the rule generally does not expand upon the activities that will result in fiduciary status for retirement plan committee members, since retirement plan committees members are already ERISA fiduciaries because of their responsibilities for the management of the plan and its assets. And, for those who are already ERISA fiduciaries, the duties of loyalty, prudence, diversification of plan assets, acting for the exclusive benefit of plan participants and beneficiaries, and administering plans in accordance with their terms remains the same.
Service Provider Dealings
Wagner notes that where it might have an impact is in dealing with service providers who in the past may not have regarded themselves as fiduciaries. She cites the example of a consultant making recommendations that might be perceived as advice who could have in the past avoided fiduciary responsibility by saying he or she did not render advice “on a regular basis,” or that a recommendation was not intended to serve as the “primary basis” for investment decisions. The broader approach of the new fiduciary regulation characterizes any investment-related communication that “would reasonably be viewed as a suggestion [to] engage in or refrain from taking a particular course of action” as fiduciary in nature – even if the communicator does not intend to give definitive advice.
So what could this mean? Wagner explains that the increase in potential fiduciary liability under ERISA might mean that retirement plan committees members might wish to review and possibly increase their fiduciary liability insurance. Additionally, because of a perceived higher risk of liability as a fiduciary, the fees charged by a service provider that is now being treated as a fiduciary may be higher – and that might suggest a reconsideration as to whether those higher fees remain reasonable.
Finally, Wagner notes that to the extent that a service provider is acting as a fiduciary, retirement plan committees will want to confirm the manner in which the service provider is dealing with potential conflicts of interest.
She also notes that while it might have more impact on Human Resources staff than on retirement plan committees, investment education and distribution options should be considered in light of some new provisions in the regulation regarding communications.