Since 1975, despite major changes across the retirement landscape, the definition of a fiduciary for purposes of providing investment advice to employee benefit plans under the Employee Retirement Income Security Act (ERISA), has remained the same. The current definition requires a cumbersome and fact-intensive five-step analysis to determine who is considered a fiduciary. This analysis is increasingly difficult to administer in today’s marketplace given the complicated nature of new investment products, a dramatic shift from defined benefit plans to defined contribution plans, and complex inter-relationships between and among plan advisors and their affiliates.
In addition, under the existing rule, some advisers are allowed to operate without disclosing conflicts of interest, while at the same time claiming impartiality, thus compromising the degree of protections available to workers in these plans.
In order to enhance retirement security for plan participants nationwide, the Department of Labor is proposing a regulation to update the definition of a fiduciary under ERISA. The proposed regulation was published today in the Federal Register.
The proposed regulation would:
- Discourage harmful conflicts of interest by deterring service providers from engaging in self-dealing, acting imprudently, and subordinating the plan’s interests;
- Enhance the Department’s ability to enforce and obtain redress from service providers who engage in abuses that currently exist in the market, such as undisclosed fees;
- Align the obligations of persons who provide appraisals to the plan with those of plan fiduciaries who rely on these appraisals; and
- Designate as fiduciaries those investment advisors and consultants who represent themselves as such.
Our proposal will ensure that plans get advice that is based on unbiased information. We believe the proposed rule will better protect the interests of plan participants and their families. We encourage you to review the proposal and to submit your comments.
Phyllis Borzi is the Assistant Secretary for the Employee Benefits Security Administration.
