Seven Action Items for a Happy Fiduciary New Year

Making preparations for the new fiduciary rule change? Here are seven simple items to help you get started.

There have been quite a few delays in the finalization of the Department of Labor’s fiduciary regulation changes (effective 2019). Such regulation changes will now not only affect retirement plan advisors but also any advisor, participant or person involved with a retirement plan that advises on IRAs, rollovers or distributions. Because of this, record keepers, advisors, broker dealers and registered investment advisors are all taking new steps to ensure that they provide the required documentation to clearly state that they are either a fiduciary (who provides advice) or a non-fiduciary (who does not provide advice).

Currently, there are six basic responsibilities that fiduciaries must abide by:

• Act solely in the interest of plan participants and their beneficiaries.
• Prudently follow a process and document that process.
• Follow the rules of the plan documents.
• Ensure that investments are well diversified.
• Ensure that fees are reasonable.
• Affirm that all plan sponsors are acting in a prudent and continuously responsible manner in managing the plan.

The new rule has brought light to other plans outside of the defined benefit realm. It opened new fiduciary rules and responsibilities in individual retirement accounts as well as defined contribution plans like 401(k)s and 403(b)s in addition to defined benefit plans.

Investment advice has been considered and still is considered a fiduciary act. It was required that advice had to be rendered as to the value of the securities and that recommendations had to be provided and reviewed for the plans that these investments were part of. The investment advice had to be complete on a regular basis and had to be pursuant to an agreement between the plan and the planning fiduciary and that the advice was and will serve as a primary basis for investment decisions with respect to plan assets.

The Department of Labor basically contended that the five-part rule doesn't reflect the broad fiduciary rules of an ERISA in the current era participant directive of retirement plans and the common use of IRAs when it comes to 401(k) plans and 403(b) plans, was the rollover of plan assets.

The new rule provides that a person will be considered a fiduciary of investment advice with respect to the plan or an IRA if they do any of the following:

• Provide a plan participant, IRA beneficiary or IRA owner any type of advice for a fee or any other compensation direct or indirect.
• Make investment advice either directly or indirectly by a person who represents that they are acting in a fiduciary manner.
• Direct buyers to specific advice regarding the advisability of an investment or management decision with respect to the securities of the plan or IRA.

What is a recommendation?

A recommendation is a communication that would be reasonably viewed and suggest that the advice recipient should engage in or refrain from taking a particular course of action. That determination is based on the content that's provided and the presentation of that communication.

What might not be a recommendation?

• When the plan is independent of the plan provider.
• When investment selection and monitoring activities are carved out as “non-recommendations.”
• Any general communications that a reasonable person would not view as an investment recommendation including general newsletters, commentary, publicly broadcasted talk shows, remarks, widely attended conferences, seminars, news reports for general distributions and broadly distributed market materials.
• Education. The Department of Labor specifically states that education will not be considered a recommendation. No matter if the educator is a plan sponsored fiduciary service provider. No matter the frequency of the delivery. No matter what form provision or information it comes through.
• Any communications via call, video, computer software, in writing, orally to an individual or to a large group (provided that the education information does not provide recommendations).
• Plain information descriptions of the terms or operations of a plan the benefits of an IRA or plan participation the impact of increasing contributions general education, FAQS or benefits of a plan.
• General financial and investment and retirement information.
• Asset allocation models. As long as the models are based on generally accepted investment theories which take into consideration historic returns of different asset classes or if it's accompanied by any material, facts and assumptions such as retirement ages, expectancies, income levels or third accompanied by a statement that any participant beneficiary IRA owner applied the model to themselves must take into account their own assets and income.

Seven Action Items….

Fiduciary compliance is more crucial than ever. So, as an individual or sponsor fiduciary, here are seven action items that you can start implementing today to prepare for the new fiduciary rule changes:

1. Take the opportunity to review plan management best practices.
2. Monitor the planned service provider’s responsibilities, communication, and fees. This rule is directed at investment advice and that is not just confined to define contribution plans. include IRAs, pre-tax, IRAs Roth IRAs, SEP IRA, Simple IRA, 403(b) plans, defined benefit plans and Health Savings Accounts that include investment components in the HSA plan.
3. Understand when the service providers are and are not acting as fiduciaries. An advisor may not always technically be a fiduciary. Ask the question, are you acting as a Fiduciary to my plan or account?
4. Review any agreements or correspondence from providers that use investment advisors. Check for statements regarding their fiduciary status and note where changes might be forthcoming from the providers including potentially higher fees to manage these changes and to provide more services around fiduciary monitoring.
5. Review any educational materials provided by the investment advisors to ensure that no inadvertent recommendations are being made.
6. Review any communication to plan participants regarding rollovers and distributions to ensure that no particular recommendations are inadvertently being made.
7. Make sure those individuals in addition to plan sponsors and fiduciaries of the plan are educated about the new rule requirements.

2018 will be a fiduciary focused year. If you need assistance, your record keeper or third-party administrator can refer you to a plan advisory firm that specializes in retirement plans.

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.