Labor Department proposes new fiduciary rule for ERISA plans
ERISA plans may update a term that was first defined in 1975.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that governs pension and health plans in the private industry. It requires plan participants receive plan information and provides fiduciary responsibilities to those managing the accounts.
The Labor Department is considering updating its current definition of the term fiduciary. If passed, the rule would treat those who provide investment advice “to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner as fiduciaries under ERISA and the Internal Revenue Code in a wider array of advice relationships than the existing ERISA and Code regulations, which would be replaced.”
More on the proposal
As noted in recent articles by IRA Market Report and MarketWatch, the current fiduciary standard was set in 1975. During that time, there was no such thing as an IRA or 401(k). As a result, advocates for updating the standard state that the current rule does not adequately address the role a fiduciary plays in advising these accounts. The proposed revisions are designed to lead to a higher standard of care, forcing fiduciaries to look out for the interests of account holders as opposed to focusing on their own bottom line. The standard would also call for advisors to disclose a greater number of potential conflicts of interest and disclose when they are receiving broker compensation.
Critics of the rule point to a potential loophole that could negate these safe measures. For example, investors who can satisfy an exemption may not have to disclose conflicts of interest or broker compensation. Both news sources specifically point to the exception known as BICE. BICE, or the Best Interest Contract Exemption, allows a conditional relief for compensation like commissions and revenue sharing if the advisor or firm acknowledges fiduciary status and discloses basic information about the conflict, amid other requirements.
Impact of the proposal
If approved, advocates argue that even those fiduciaries who meet the exemptions will be held to a higher standard of care than they currently are. Regardless, the discussion draws attention to the complex nature of ERISA benefits.
Issues with fiduciaries are just one of many that can arise when making an ERISA claim. As a result, those who are making an ERISA claim are wise to seek the counsel of an experienced ERISA lawyer. This legal professional will guide you through the claims process, working to better ensure your rights are protected and that you receive the full benefits you are entitled to.