Background
Federal law protects plans, plan participants, and IRA owners by requiring all who provide retirement investment advice to abide by a “fiduciary” standard. Among other responsibilities, fiduciaries are required to
act impartially, provide advice that is in plan sponsors’ and plan participants’
best interests, and are not permitted to receive payments creating conflicts of interest without a
prohibited transaction exemption (PTE).
New Standards for Fiduciary Status
Because large loopholes in the current definition of retirement investment advice make it hard for individuals to determine whether such advice is being given in their best interest, the DOL’s new definition provides that
any individual receiving compensation for providing advice with the understanding that it is based on the particular needs of the person being advised or that it is directed to a specific plan sponsor, plan participant, or IRA owner is a fiduciary.
In addition, the final rule expands the types of retirement investment advice covered by fiduciary protections. The threshold element in establishing the existence of fiduciary investment advice is whether a “recommendation” occurred. Among others, the following types of communications
do not qualify as recommendations and are considered non-fiduciary:
- Retirement education: Providing general education on retirement saving does not trigger fiduciary duties. Education (as defined in the rule) will not constitute advice regardless of who provides the educational information (e.g., the plan sponsor or service provider), the frequency with which the information is shared, or the form in which the information and materials are provided.
