After much anticipation and speculation, the United States Department of Labor (DOL) released its final regulation to define, once and for all, who is expected to assume fiduciary responsibility of a retirement plan as determined by the Employee Retirement Income Security Act (ERISA) of 1974. The final rule establishes that those who are compensated for providing investment advice or recommendations with respect to a retirement plan or IRA will now be held to the fiduciary standard. Meaning that anybody who provides investment advice to plan sponsors and/or participants are now explicitly responsible for following the fiduciary standard of conduct, and that the advice given must reflect “loyalty to the ‘best interests’ of plan participants and beneficiaries, and must disclose any potential conflicts of interest.”
In addition to increased accountability and transparency among advisors, the new DOL rule will also result in increased paperwork as there will be a huge effort “to know how and to whom the money flows.” Fortunately, you have a little more time than was originally planned to become acclimated to the influx of paperwork. A transition period is scheduled to take place from April 10, 2017 to Jan. 1, 2018; which means that while plan sponsors are needed to comply with the new rule by April 10, 2017, documentation doesn’t have to be ready to go until Jan. 1, 2018.
Here are some tips to help you prepare for the changes that will ultimately impact retirement plan sponsors.
Sit down with your advisor
Before the DOL’s new rules go into effect, schedule a time to sit down with your plan advisor to discuss their fiduciary responsibilities with regard to your company’s retirement plan. This includes simply asking whether a particular financial service advisor is a fiduciary to your plan. In fact, under this new rule, plan sponsors could be looking at a fiduciary breach by simply failing to ask this one question. The services provided by some advisors may change as a result of the final fiduciary rule. Having a conversation early in the process and being aware of potential changes allows you to react accordingly.
Understand your obligations
Read up on ERISA’s fiduciary standard of conduct to ensure you are acting in accordance with the law while guarding against a lawsuit or any ERISA-violation penalties you may be subjected to as a result of noncompliance.
Stay out of trouble, help enforce the code of conduct
Because fiduciaries are required to adhere to a strict standard of conduct, the DOL is looking to you to be responsible to help enforce the fiduciary standard among all advisors.
Become an advocate for reasonable fees
Plan sponsors have always been in charge of securing reasonable plan fees, but the new rule makes this task even more important as advisors are now expected to track the flow of funds and provide the information to the plan sponsors. To eliminate any apprehension concerning “the behind-the-scenes transfer of revenue,” some analysts predict that advisors will change their compensation models to a flat rate or as a percentage of assets if a different fee structure is currently being utilized.
Embrace education
Obviously you can’t do your job to the best of your ability if you don’t have an educational foundation upon which to build, which is why the DOL has made a stipulation with regard to fiduciary responsibility and how it impacts general education on retirement savings. This means an individual can provide basic plan information to participants without being held liable to the strict fiduciary standard of conduct, but only if that individual is careful not to cross the line between offering guidance and providing advice.
Are you ready to comply with the DOL’s new rule? Email Rea & Associates to speak with a retirement plan expert about this new regulation and find out what you can do now to prepare to avoid compliance issues during a future benefit plan audit.
By Darlene Finzer, CPA, QKA, CSA (New Philadelphia office)