What should ERISA fiduciaries be aware of this last quarter? Here is Arnerich Massena’s Legislative Update for first quarter 2016:
Review of Final Fiduciary Rule
The new definition of fiduciary will go into effect one year after the rule is published in the Federal Register – it is expected to go into effect April 2017 – but with an additional eight months for firms to fully comply with the conditions of the exemptions. Full compliance will be required as of January 1, 2018.
The DOL’s revised fiduciary rule will broaden the types of retirement investment advice subject to fiduciary obligations. Specifically, under the new rule, individuals providing advice now have heightened obligations as fiduciaries, replacing the previously permitted suitability standard. As such, any individuals who receive compensation for making investment recommendations that are individualized or directed to a particular plan sponsor, participant, or IRA owner is considered a fiduciary and bears fiduciary responsibility for those recommendations.
Arnerich Massena supports broadening the types of advisors subject to fiduciary obligations and we continue to embrace our role as a fiduciary.
Mid-Year Changes Permitted in Safe Harbor Plans
Historically, unless regulations or guidance allowed for mid-year changes by the IRS, plans that utilized the nondiscrimination safe harbor could not be amended in the middle of the year. Notice 2016-16 clarifies that most mid-year amendments would not disqualify a 401(k) or 403(b) safe harbor plan.
This change provides clarity, rather than having to find an exception, that most mid-year amendments will not disqualify a safe harbor plan.
Looking Ahead – 2016 Priorities for DOL Regulatory Agenda
State-Run Retirement Plans – On the DOL’s agenda is proposed regulation on state-run mandatory auto-enroll IRA programs. The project was specifically mentioned by President Obama. Many expect final rules before the end of the Presidential administration.
Company Stock in Retirement Plans – There continues to be heightened focus and scrutiny for fiduciaries working with company stock in 401(k) plans. Recent filings by the DOL and Securities and Exchange Commission (SEC) appear to expand responsibilities when it comes to company stock. The American Benefits Council has filed an amicus brief in Whitley et al. vs. BP PLC et al. saying that a “pro-participant ruling could accelerate sponsors’ moves to eliminate their company stock funds because of expanded litigation risk.”
The latest developments expand on those from the Fifth Third Bancorp stock-drop case, which placed greater responsibility on fiduciaries in terms of monitoring and oversight.
Other Important Agenda Items – The DOL continues to focus on target-date fund disclosures as well as guidance on brokerage windows. However, while these projects are on the agenda, these issues may not be addressed during the current Presidential administration.