EBSA to Re-Issue Proposed Rule Re-Defining "Fiduciary" Under ERISA

The Department of Labor’s Employee Benefits Security Administration (EBSA) has decided to re-propose a rule that would more broadly define who constitutes a “fiduciary” for the purposes of rendering investment advice under the Employee Retirement Income Security Act (ERISA). The initial proposed rule released in October 2010 has generated a substantial amount of controversy regarding its potential impact on the relationship between retirement savers and plan sponsors. In an attempt to explain the proposal, the EBSA conducted a series of public meetings and issued fact sheets on the proposed changes. After these actions failed to stem criticism of the proposal, lawmakers held a hearing in July 2011 to discuss its implications. During that hearing, witnesses criticized the agency for failing to properly consider the possible costs and fees associated with the rule and its potential impact on the IRA market, while others claimed that the rule would increase risks associated with providing advice. Still others raised the possibility that long-standing business practices in the financial services industry would suddenly be considered prohibited transactions under the rule, and that the DOL’s exemptions approach to address this problem is insufficient. A number of hearing panelists urged the EBSA to re-propose the rule.

Such concerns – in addition to the more than 260 written comments submitted in response to the proposed rule – have led the EBSA to reconsider its approach. According to a press release, a revised proposal will be published in early 2012. The EBSA claims that it:

anticipates revising provisions of the rule including, but not restricted to, clarifying that fiduciary advice is limited to individualized advice directed to specific parties, responding to concerns about the application of the regulation to routine appraisals and clarifying the limits of the rule's application to arm's length commercial transactions, such as swap transactions. Also anticipated are exemptions addressing concerns about the impact of the new regulation on the current fee practices of brokers and advisers, and clarifying the continued applicability of exemptions that have long been in existence that allow brokers to receive commissions in connection with mutual funds, stocks and insurance products. The agency will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice.

Once the proposed rule is re-issued, the public will have another opportunity to provide comments.

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Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.