Like Marty McFly in Back to the Future, our industry is on the cusp of going back in time—not to 1955 but to 2016.
Why 2016? Because, regardless of the Department of Labor’s October 2021 transition relief, we’re headed back into the world of the “fiduciary rule” that is similar to what we had in 2016.
For those who know the movie’s time travel history, you know that events in the past can change the future, so, to be fair, 2022 will not be identical to 2016. For example, there’s no required “best interest contract” coming in 2022—but the rules that are coming down the rails in Back to the Future: Fiduciary Rule Part III get you to the same place: the risk of compliance “foot faults,” regulatory enforcement and more claims in litigation.
So after all these movie references, why should you care? Here are three reasons.
Consolidation
First, the retirement industry is far different than it was in 2016. Even as I write this column, another major merger among industry providers (pick your advisor, recordkeeper, TPA or fund company merger as part of retirement industry merger bingo) was announced today. Why does that make a difference? Simply put, with fewer and larger industry players today, the risks that ancillary services and products could cause a trip-up under the Department of Labor’s updated fiduciary guidance in Prohibited Transaction Exemption 2020-02 is higher than ever. So if you’re part of an integrated organization—even with the extension in Field Assistance Bulletin 2020-02—now is a good time to make sure your business aligns with the Department of Labor’s position.
New Business Models
Second, business models themselves have changed. We have all seen the swings from bundled solutions, to completely unbundled solutions, and then rinsing and repeating the same cycle again and again. Many modern service provider structures are designed on providing a suite of services.
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At the same time, class action lawsuits regularly focus on the provision of multiple services by related entities. The majority of the retirement service provider universe is compliance-focused and has given significant thought on how to build these suites of solutions and products. As product offerings have evolved, however, the Department of Labor’s new position may provide a good opportunity for that double-check on your processes and procedures under the fiduciary rule.
Enforcement
Third, the retirement universe continues to feel the full effects—and burdens—of rigorous enforcement by the Department of Labor. From abandoned plans to missing participants and now cybersecurity, the Department of Labor regularly digs deeply into plan and provider operations.
With the Department of Labor’s position on the definition and scope of ERISA’s fiduciary rule further crystalized in the 2020 guidance, it is likely a matter of when, not if, investigations dive deeper into a wide range of topics—from IRA rollovers and investment offerings, to other services and solutions. Making sure your solutions are buttoned up holds the potential to pay benefits for you and your clients in the event of enforcement activities.
Those are just three reasons to care about Back to the Future: Fiduciary Rule Part III. Will there be more chapters in this saga or is it just a trilogy? Who knows! But sometimes it is best to focus on the newest sequel before wondering, will there be another Back to the Future that brings us the Fiduciary Rule Part IV: A New Hope?
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the latest issue of NAPA Net the Magazine.
