News You Can Use! for Advisors and CPAs
In April 2024 the Department of Labor (DOL) finalized a new definition of who qualifies as an investment advice fiduciary and what those individuals must do in order to receive a fee for providing that advice. These rules make changes that advisors need to be aware of to ensure continued compliance with ERISA’s requirements.
What changed?
The new rule expands the services that could result in someone being an investment advice professional. Notably, the expanded list of covered services includes not only “traditional” types of investment advice (such as recommending particular securities or an investment strategy), but now also includes making recommendations regarding:
- Advisability of rolling over, transferring, or distributing assets from a plan or IRA, including:
- Whether to engage in the transaction,
- The amount, the form, and the destination of such a rollover, transfer, or distribution.
- How plan assets should be invested after a distribution; and
- Advice on selection of other persons to provide investment advice or investment management services to the plan or investor.
A person who provides a covered service for a fee will be an investment advice fiduciary if they either (a) regularly provide professional investment advice and the recommendation is sufficiently individualized or (b) they represent they are a fiduciary. As plan advisors already know, fiduciary status is important because fiduciaries have certain obligations to participants and are prohibited from receiving a fee from plan assets un-less certain requirements are satisfied. The DOL also updated those prohibited transaction exemption requirements in significant ways — including revising the required disclosures and requiring the implementation of certain policies and procedures.
Practical Impact
- Identify All Investment Advice Services and Educate as Needed
The DOL rule expanded the types of services that will result in fiduciary status in a number of ways. Advisors should carefully evaluate and identify when they may be providing these services to ensure they meet the DOL requirements.
If the advisor does not want to be acting as a fiduciary in these instances, then care should be taken to avoid meeting the definition. One clear way to avoid fiduciary status is to avoid making a covered recommendation. Therefore, advisors may wish to ensure employees understand the distinction between education and recommendations so that they stay well clear of any potential fiduciary status when interacting with participants about distributions or referring clients to other service providers. - Ensure Compliance by the Applicable Deadlines
The new, expanded definition of fiduciary investment advice will take effect September 23, 2024 (absent any court order delaying the effective date). However, most of the requirements under the revised prohibited transaction exemption are delayed to September 23, 2025, with the exception of certain impartial conduct requirements. Thus, identification of fiduciary services is critical before the 2024 deadline, but advisors will have another year to fully comply with the most onerous aspects of the prohibited transaction exemption.
In conclusion,
The fiduciary rule is complex, and advisors should act quickly to ensure continued compliance with ERISA when working with ERISA retirement plans and participants.
Reminders
July 29, 2024
Deadline to distribute a summary of material modifications (SMM) to participants for plan changes (unless already included in an updated SPD).
July 31, 2024
Deadline to file the Form 5500 or request for extension of time to file.
July 31, 2024
Deadline to file the Form 5330 (reporting excise taxes) or request for extension of time to file.
by Kelsey Mayo
Partner, Poyner Spruill
Kelsey’s practice is focused in the areas of Employee Benefits and Executive Compen-sation. She works with business owners and HR executives to understand and manage employee benefits and executive compen-sation arrangements. She routinely represents clients before the Internal Revenue Service, Department of Labor, and Pension Benefit Guarantee Corporation and has extensive experience in virtually all aspects of employee benefit plans and executive compensation arrangements.