On June 9, 2017, the impartial conduct standards of the U.S. Department of Labor’s (DOL) new fiduciary rule take effect. It requires those who give advice to a 401(k) plan with under $50 million in assets to act in the plan’s “best interest.” While much of the rule is delayed until January 1, 2018, as of June 9, the impartial conduct standard paraphrased below takes effect:
- Give advice with the best interest standard of care (prudence and loyalty);
- charge no more than reasonable compensation; and
- make no misleading statements regarding investments, compensation and conflicts of interest.
Employers are fiduciaries of retirement plans they offer. They are legally obligated to prudently select and monitor service providers. The obligation to monitor arguably takes on greater significance as implementation of this rule moves forward. Some express concern that if a participant accuses the plan’s provider of giving advice that fails the impartial conduct standard above, then the employer, as co-fiduciary, could face liability for failing to properly monitor the provider. As we await full implementation, proactive employers should take steps now.
- Review notices from all providers to ensure awareness and compliance.
- Pay attention to participant communications, particularly as they relate to rollover information from providers.
- Ask providers how services to your plan are changing as a result of this new rule.
- Review the contracts and administrative service agreements you have signed with your providers to determine whether something should be amended, deleted, or clarified.
- Ensure clear policies are in place with your HR benefits staff with respect to communicating with participants regarding investment education versus advice.
The DOL issued FAQs as guidance during the transition period of June 9 to January 1, 2018.