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Case of the Week: Status of DOL's Fiduciary Rule

The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Florida is representative of a common question related to the DOL’s definition of an investment advice fiduciary. The advisor asked:

“What is the status of the final rules the DOL has promised regarding when a financial advisor would be considered as providing investment advice and, consequently, become a plan or IRA fiduciary?”

Highlights of Recommendations

• You ask the “64,000 question.” Or, in today’s terms, with inflation, “the $556,582.69 question” (from the Bureau of Labor Statistics’ CPI Inflation Calculator).
• According to the DOL’s semi-annual regulatory agenda for 2014, the DOL’s Employee Benefit Security Administration anticipates issuing its second Notice of Proposed Rule Making (NPRM) for what it calls its “Conflict of Interest Rule-Investment Advice” in August of 2014.
• An NPRM is a notice published in the Federal Register that announces the intent of an agency to promulgate a particular rule. Generally, when posting an NPRM, an agency will also announce an opportunity for public comment (usually at least 60 days).
• Publication of an NPRM is often the first time the public becomes aware of an agency's rule proposal on a topic. Though, in this case, this will be the second such notice. The DOL issued its first NPRM and proposed rules in October of 2010. After a public hearing and two comment periods, the DOL vowed to finalize its proposed regulations by the end of 2011. But in the face of severe congressional and industry opposition, the DOL withdrew its 2010 proposal in September of 2011 to allow more time for input and reflection.
• It is anticipated that (if or when) this rule is eventually finalized, it would more broadly define as fiduciaries those persons who render investment advice to plans and IRAs for a fee within the meaning of section 3(21) of the Employee Retirement Income Security Act (ERISA) and section 4975(e)(3) of the Internal Revenue Code. The DOL intends to have the rules take into account current practices of investment advisors and the expectations of plan officials and participants, and IRAs owners who receive investment advice, as well as changes that have occurred in the investment marketplace, and in the ways advisors are compensated that frequently subject advisors to harmful conflicts of interest.

Conclusion

If the DOL releases its NPRM along with the proposed rules for investment advice fiduciaries in August 2014, we can anticipate a public comment period of at least 60 days and then a period of time for the DOL to issue final regulations. Then, it is often the case that the DOL applies a delayed effective date for final rules (e.g., 180 days after publication). The Columbia Management Learning Center will continue to monitor and report on the progress of these all-important fiduciary regulations.

The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.

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