Defined contribution industry participants are paying close attention to the carve-outs — exemptions distinguishing non-fiduciary behavior from fiduciary behavior — in the Labor Department's fiduciary rules proposed last month.
Key issues addressed by the exemptions for defined contribution plans include financial education and the role of certain employees working with DC plan fiduciaries, ERISA attorneys and benefits consultants say.
Reactions to the carve-outs range from concern to uncertainty to relief.
“Overall, I think the carve-outs are helpful,” said Julia Zuckerman, director in the compliance consulting center of Buck Consultants in Washington.
However, Ms. Zuckerman and others interviewed for this story said the Labor Department's proposal covering the difference between non-fiduciary financial education and fiduciary-related financial advice could be troublesome for plan officials and participants.
The good news, the attorneys and consultants say, is that the DOL's proposed exemptions for education are similar to those the agency issued 19 years ago. The bad news is that the DOL proposal adds a passage that increases the scope of fiduciary standards for sponsors' communication to participants.
Unlike the longstanding guidance, the proposal makes a distinction between DC plan communications that describe generic investment information and asset allocation models that refer to specific investment products in the DC plan. Under existing guidance, the latter wouldn't be subject to a fiduciary standard. Under the DOL proposal, however, combining general-investment and specific-product information in the plan would fall under the umbrella of fiduciary behavior.
The DOL proposal “puts a roadblock on sponsors' education efforts,” Ms. Zuckerman said.
“Some financial education connects the dots between the generic and the specific in the plan,” added Marjorie Martin, a principal in the compliance consulting center at Buck Consultants“This takes that away. It's a negative for participants.”
Ms. Martin and Ms. Zuckerman noted the proposed rule doesn't prevent DC plans from making those connections — just that such an approach would be viewed as a fiduciary act. One way to avoid this dilemma is to provide separate sets of information — one document that describes general investing strategies and another that discusses options offered by the plan.
If DC plan communications describe an asset allocation model with specific asset classes, that wouldn't be considered a fiduciary situation under the proposed rule, Ms. Zuckerman said. However, describing the model with specific product choices available within a plan would make this information a fiduciary event.