The Department of Labor's Employee Benefits Security Administration on Thursday announced a proposed expansion of whom the agency would consider a fiduciary to include consultants that offer advice to retirement plans on proxy voting and the hiring of investment managers, according to the proposed rule.
In addition, broker-dealers who make securities recommendations to retirement plans would fall under fiduciary requirements.
A key target of the proposed rule is the third-party payments that some investment consultants receive when retirement plans hire money managers recommended by the consultants, ERISA attorneys said.
The new rule would subject investment-related advice of consultants, broker-dealers and others to all ERISA fiduciary obligations, including prohibitions on self-dealing and other conflicts.
In its proposed regulation, DOL contends that an overhaul of its fiduciary definition is sorely needed because the current rule makes it too easy for entities offering investment-related advice to avoid a fiduciary obligation to the plan.
“The (existing) rules have really become a barrier to the department's ability to protect participants and beneficiaries,” said Phyllis Borzi, assistant Labor secretary for the EBSA, in a teleconference for reporters Thursday on the proposed rule.
Under the existing fiduciary definition, the entity offering advice to the plan has to be doing so on a “regular basis,” subject to a “mutual” understanding that the advice will serve as a “primary basis” for investment decisions involving plan assets, according to the text of the proposed rule.
The proposal would eliminate key existing rule exceptions, making clear that parties that offer investment advice to employee benefit plans for a fee could not avoid fiduciary responsibility or are registered with the SEC as investment advisers, and the advice “may be considered in connection with making investment or management decisions with respect to plan assets,” the proposed rule says.
In the text of its proposed rule, the DOL said plan representatives want impartial advice from consultants, appraisers and other advisers.
“These persons significantly influence the decisions of plan fiduciaries, and have a considerable impact on plan investments,” the text of the DOL's proposed regulation says. “However, if these advisers are not fiduciaries under ERISA, they may operate with conflicts of interest that they need not disclose to the plan fiduciaries who expect impartiality and often must rely on their expertise,” the DOL said in the text of its proposed rule.
The complete proposed regulation is available at http://www.ofr.gov/OFRUpload/OFRData/2010-26236_PI.pdf.
In the conference call, Ms. Borzi said the public would have until Jan. 20 to comment on the proposal.
