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In this article we briefly discuss three recent developments with respect to the Department of Labor’s controversial 2016 Fiduciary Rule: DOL’s proposed further extension of the full applicability date of the Best Interest Contract (BIC) Exemption; recently issued FAQs clarifying that, generally, a person may encourage a participant to save without triggering fiduciary status; and oral arguments in the appeal of the district court’s decision (in favor of DOL) in litigation challenging the rule.
On April 7, 2017, the DOL finalized a regulation delaying the applicability date of its 2016 Fiduciary Rule for 60 days, until June 9, 2017. At the same time, it delayed compliance with certain requirements of the exemptions that were part of its regulation package (including, e.g., the BIC) until January 1, 2018. Until that date, “fiduciaries relying on these exemptions for covered transactions [are required to] adhere only to the Impartial Conduct Standards (including the “best interest” standard), as conditions of the exemptions.”
According to a filing made August 9, 2017, with the U.S. District Court for the District of Minnesota, DOL has sent to the Office of Management and Budget a proposal to further delay the full applicability date, and extend the transition period, for another 18 months, until July 1, 2019, of three fiduciary rule exemptions, including the BIC.
Some have suggested that this further delay in the applicability of, e.g., the BIC written contract and website disclosure provisions may signal a significant re-thinking of those issues by DOL.
On August 4, 2017, DOL published new Frequently Asked Questions guidance with respect to the fiduciary rule, addressing an issue that has been raised by a number of industry groups: the extent to which persons may encourage participants to save without triggering fiduciary status.
The new FAQs state that it would not be “fiduciary investment advice” to encourage additional contributions to a plan or IRA to “maximize the value of employer matching contributions or … to meet objective financial retirement milestones, goals, or parameters based upon the participant’s age, time to retirement or other similar measures” provided no specific investment recommendations are made.
The FAQ on this issue includes several examples of communications about contributing/increasing contributions that do not trigger fiduciary status, including:
A targeted email that is sent on the anniversary date of a participant’s enrollment that contains no reference to a specific investment, but suggests that the individual increase his or her contribution to the plan by a specific percentage because the participant is short of a particular savings goal ….
A targeted email that is sent to an employee on his or her birthday that makes a suggestion as to the amount to contribute based on the amount that the individual has already saved in his plan, but that is silent with respect to specific investment choices.
A telephone call with an ERISA plan participant in which a call center employee suggests a specific overall retirement savings goal (e.g., 15 percent of pay when considering voluntary employee contributions and employer matching contributions) and recommends that the participant, who is currently contributing 4% of her salary to the plan, increase her contribution by 3% to a total of 7% of her annual salary to take full advantage of the employer matching contribution of up to 7% of the participant’s annual salary.
In addition, “recommendations or suggestions to a plan administrator or other plan fiduciary relating to methods to increase employees’ participation in, or level of contributions to, an ERISA plan” would generally not trigger fiduciary status, so long as no specific investment recommendations are made.
Some have suggested that the position being taken by DOL in this new FAQ guidance may conflict with earlier DOL guidance. In any case, the new guidance raises a question: does it extend to a recommendation that a participant not decrease her savings, e.g., not take a cash distribution on termination of employment? While the examples provided by DOL do not address this issue, such a recommendation could be styled as a recommendation to save at a rate targeted to meet, e.g., an “objective financial retirement milestone.”
In addition, the FAQs provide guidance on compliance with the requirement (under ERISA section 408(b)(2) regulations) that a service provider notify a plan if services “are to be provided in a fiduciary capacity,” where the fiduciary rule will (or may), in effect, turn the service provider into a fiduciary.
Finally we note that on July 31, 2017, a three-judge panel of the Fifth Circuit Court of Appeals heard oral arguments in the litigation challenging, among other things, the constitutionality of the fiduciary rule. The three judges on the panel are Chief Judge Carl E. Stewart (a Clinton appointee), Judge Edith H. Jones (a Reagan appointee) and Judge Edith Brown Clement (a George W. Bush appointee).
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We will continue to follow this issue.