The Department of Labor this week delayed its fiduciary rule by 60 days, while it attempts to fulfill President Donald Trump’s February memorandum directing the DOL to examine the rule to make sure it doesn’t adversely affect the ability of Americans to gain access to retirement information and financial advice. The initial implementation date is now extended from April 10 to June 9.
Although more debate is expected and some predict the delay to become a permanent halt to the rule, most industry experts believe the rule will exist in some form or other. The majority of employers are embracing best interest standards in an attempt to avoid legal action.
Here are three important things employers should know about the fiduciary rule delay.
How does the delay affect employers’ role as fiduciary?
Employers who sponsor retirement plans are already fiduciaries, so it will continue to be their job to make sure the service providers to their retirement plans are working in the best interest of their employees, says Shelby George, senior vice president, advisor services, for Manning & Napier.
There has been “explosive growth in the number of suits filed against fiduciaries and growth in the number of allegations and the number of dollars at stake in notable settlements that have happened,” she says.
That means it is imperative that employers become more involved with the decisions of their plans and not rely solely on their recordkeepers to make the big investment decisions — otherwise they could find themselves on the other side of a conflict of interest lawsuit.
Fiduciaries must “act in the best interest of plan participants, make decisions with a prudent process and ensure that participants pay no more than reasonable fees,” George explains.
Plan sponsors need to make sure their investment committees document every decision that is made and why so that if a plan participant does decide to sue, there is plenty of written evidence about why the company made all of its decisions concerning the plan, she notes.
They also need to do a better job of vetting their plan adviser, whether that person is a registered investment adviser or someone who follows a commission-based model. They need to determine what services are being provided and at what price. That also means digging deeper into the fees that will be passed on to plan participants. Most employers who sponsor plans have been doing a better job of looking into plan fees since fee disclosure rules went into effect in 2012.
How does the delay affect retirement education and communication?
Most retirement plan providers, experts say, have already invested a great deal of money into improving plan communication and education, making every effort to comply with the fiduciary rule’s mandate about not making specific investment recommendations but instead informing participants of their options.
The delay of the rule will probably not put a halt to these new types of communication as companies have already gone through the trouble of developing them in anticipation of the rule’s full implementation, which was scheduled for April 10 of this year.
How does the delay affect advisers who work with employers on retirement planning?
Overall, industry experts say that all of the attention on the fiduciary rule in recent months has opened the eyes of most plan sponsors, causing them to do a much better job of vetting the advisers who work with their retirement plans. And because the fiduciary rule has been in the works for years, most companies who deal with financial advice — whether registered investment advisers or broker-dealers — have already made the necessary changes to their business practices and fully expect to move forward with the changes.
Most plan sponsors and advisers don’t mind a delay in implementation so they can hone their different advice offerings, experts say. But in the scheme of things, a delay won’t have much of an impact on the larger companies that have already invested millions of dollars in compliance with the rules.
Andrew Oringer, co-chair of the employee benefits and executive compensation group at Dechert LLP, last month told Employee Benefit News that he doesn’t believe advisers will go back to business as usual if the Trump administration eventually rescinds or revises the fiduciary rule.
“There’s been a general trending in favor of a best interest overlay anyway, and I think that both sides of the market — the financial services organizations and investors — they have grown to appreciate that,” he said. “There’s some business-based movement toward a best interest standard, not necessarily the type of hyper-technical rules we have under the DOL regulations, but some kind of principle in that direction.”
He added that even if the rule is scuttled, he believes it will be replaced by some kind of best interest legal standard, possibly made applicable to all accounts, not just retirement accounts. In that sense, all of the work companies put into complying with the final fiduciary rule was not in vain.
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