Recently issued FAQs from the Department of Labor (DOL) address the content and timing of fee disclosures from service providers who are deemed “investment advice fiduciaries” under the fiduciary rule. The FAQs also confirm that communicating to participants or plan sponsors about the importance of participating in a retirement plan or of contributing more does not in itself constitute fiduciary investment advice.
In a related development, the DOL has proposed to extend the transition period for certain requirements under the best interest contract (BIC) exemption, the principal transactions exemption and the prohibited transaction exemption (PTE) 84-24 from January 1, 2018, to July 1, 2019.
The 18-month delay would not affect the applicability of the new definition of fiduciary investment advice or the impartial conduct standards under the related exemptions, but compliance with reporting and disclosure requirements for the exemptions would be optional during the extended transition period. The temporary enforcement policy in Field Assistance Bulletin 2017-02 is also expected to be extended, in which case the DOL would not pursue claims against fiduciaries who were working diligently and in good faith to comply with the fiduciary rule during the transition period.
Service provider fee disclosures
The fiduciary rule applies to all retirement plans covered under ERISA and requires service providers to provide plan fiduciaries with pertinent information about their services and fees, including whether they (or an affiliate or subcontractor) will be acting in a fiduciary capacity. These FAQs explain disclosure obligations for service providers whose status has changed from nonfiduciary to fiduciary.
- Content during transition period. The DOL will not penalize service providers for not using the term “fiduciary” in describing their services if they (1) otherwise comply with the disclosure rules, and (2) accurately describe the services they will provide, including any that make them an investment advice fiduciary. However, a provider of fiduciary services who disclaimed fiduciary status in an earlier disclosure must correct the misstatement.
- Timing. Service providers generally would have been required to disclose a change in fiduciary status within 60 days of the fiduciary rule’s applicability date (June 9). The DOL makes an exception for circumstances beyond the service provider’s control, in which case the provider must disclose the status change as soon as practicable. The FAQs provide that, given the uncertainty around the substance and timing of the fiduciary rule and exemptions, disclosures that are made as soon as practicable — even those that take longer than 60 days — will be considered timely.
Recommendations to plans and participants
According to the FAQs, a service provider’s recommendations to a plan fiduciary for boosting participation or employee contributions do not constitute fiduciary investment advice — even if the advice is based on plan attributes or demographics — as long as the provider does not cite specific investment products or services. Similarly, recommendations to plan participants to start contributing or to save more are not considered fiduciary investment advice unless the service provider suggests specific investment products or funds.