This blog post targets employers who sponsor retirement or welfare plans and are concerned about their responsibility to stay informed and track the status of the Department of Labor’s “Fiduciary Rule.” This issue is more subjective than those about which I normally write, but with so many regulatory obligations, I hope you agree that it is worthwhile to decide what to prioritize. Before going further, I warn any financial advisors seeking additional insights into the rule: you will be disappointed!
As an Employer, How Should I Adjust My Actions Based on the Fiduciary Rule?
You shouldn’t. The DOL is absolutely concerned with employer selection of investment advisors, and while there are ERISA requirements that can penalize or impose liability on employers who do not take this responsibility seriously, the Fiduciary Rule seems intended to place more of the onus on the advisor. Proponents say it will become easier for an employer to properly select investment advisors. Critics say it will lead to less selection and to advisors being more guarded in their advice.
Regardless, employers should continue to fulfill their responsibilities by conducting due diligence on all service providers engaged in order to ensure they are the appropriate for the plan. I recall a conversation I had with a DOL auditor years before the current version of the fiduciary rule was issued. The auditor revealed that during every audit, she asks in a very conversational tone “How did you happen to find and select your investment advisor.” The response helped her determine if she needed to investigate further. Some “red flag” answers she received:
- That’s my nephew! Just got his license and I am very proud of him!
- That advisor manages our general fund and we wanted to remain consistent (While this response does not mean the selection was “wrong,” it does mean the plan’s interests were not prioritized.).
- The investment company agreed to reduce the interest on our corporate loans if we keep our plan assets with them.
In conclusion, while it would be wonderful if legislation was passed that made it easier for employers to satisfy their obligations, my opinion is that most employers would be well-served to continue to do their homework when selecting advisors, and let the Fiduciary Rule drama play out on the sidelines.
For those who may want some help or insights into how to satisfy their obligations, or who want more background on this issue, please read on!
In case some history is helpful, the government has been disappointed by the way employers operate their retirement plans since (at least) the late 1960s. “ERISA” was born out of that disappointment and highlighted an employer’s fiduciary responsibility to properly oversee plan operations. In more recent history, the DOL issued a lot of official and “unofficial” guidance to help employers satisfy their obligations. Some pieces of unofficial fiduciary guidance that I recommend include:
- “Understanding Your Fiduciary Responsibilities Under A Group Health Plan”
- “Meeting Your Fiduciary Responsibilities”
- “Selecting and Monitoring Pension Consultants – Tips for Plan Fiduciaries”
The third item listed above was last updated by the DOL in 2005, and shows a significant concern with employers hiring consultants with conflicting financial interests. It recommends that employers ask whether their consultant might receive compensation from the investments he or she recommends.
In 2010, former President Obama expressed concern about investment advice being offered by advisors with conflicting interests. After an aborted attempt to adopt a fiduciary rule back then, the DOL issued what we refer to as “Fee Disclosure Regulations,” requiring plan service providers to disclose fee and expense information to the employer, and requiring the employer to disclose information to participants. Now, we have a Fiduciary Rule in place — or at least partially in place. The remainder is expected to come into play January 1, 2018, unless President Trump’s February order for the Rule to be re-reviewed and, potentially, rescinded results in further changes.
 Unlike hiring a retirement plan financial advisor, when hiring an attorney, if the attorney will be the company’s attorney (as opposed to the plan’s attorney), you want to select the attorney who will best serve the company’s interests.