On Tuesday, April 23, 2024, the Department of Labor (the “DOL”) issued final regulations regarding investment fiduciary obligations and the definition of an “Investment Advice Fiduciary” (the “Final Regulations”) under the Employee Retirement Income Security Act of 1974 (“ERISA”). We discussed the proposed fiduciary rules published in October in a past Client Alert. The Final Regulations take effect on September 23, 2024.

While the final regulations are more narrow than both the regulations proposed last October and the final regulations that were invalidated by the Fifth Circuit Court of Appeals in 2018, they almost surely will be challenged in federal court.

Definition of “Investment Advice Fiduciary”

The Final Regulations significantly expand the definition of “Investment Advice Fiduciary” broadening the scope of the persons that therefore may have fiduciary responsibilities under ERISA.  Under the Final Regulations, an “Investment Advice Fiduciary” will be a person (a “Provider”) who:

1. Provides investment advice or makes an investment recommendation to a “retirement investor” (i.e., a plan, plan fiduciary, plan participant or beneficiary, IRA, IRA owner or beneficiary, or IRA fiduciary);
2. Provides such advice for a “fee or other compensation, direct or indirect” (e.g., for fees, commissions or other amounts earned on or from the recommended investment);
3. Makes the recommendation in one of the following contexts:
   • by stating that he, she, or it is acting as an ERISA fiduciary when making investment recommendations; or
   • by making investment recommendations to investors on a regular basis as part of the Provider’s business, and the recommendation is provided under circumstances that would indicate that –
     • the recommendation is based on the retirement investor’s particular needs or circumstances;
     • the recommendation reflects the application of professional or expert judgment to the needs or circumstances; and
     • the advice may be relied upon by the retirement investor as a basis for making investment decisions that are in the retirement investor’s best interest.

One-Time Advice

Under the Final Regulations, if a Provider gives advice on a “one-time basis” (e.g., in the case of a Provider’s recommendation to roll retirement savings out of a workplace retirement plan and into an IRA), the Provider will still be a fiduciary if it meets the above definition. The DOL’s intent is to ensure that when an investor relies on the advice of a Provider, even on a one-time basis, the Provider is held to the heightened fiduciary standard.

Increased Fiduciary Responsibilities- 401(k) Plan Sponsor Considerations

If the Final Regulations withstand judicial scrutiny, they will impact not only the Providers giving advice but also the discretionary fiduciaries of an ERISA retirement plan.  For example:

• A Provider giving one-time advice to an ERISA retirement plan participant as to whether or not to roll over his/her account into an IRA will be considered an ERISA Investment Advice Fiduciary.
• Similarly, a Provider giving one-time advice to an ERISA retirement plan participant as to how to invest his/her account will be an ERISA Investment Advice Fiduciary.
• In many cases, for a Provider to provide advice to individual participants, the discretionary fiduciary of the plan (i.e., usually, the retirement plan committee) will have to delegate that responsibility to the Provider, and the discretionary fiduciary will retain the duty of oversight. This means that the discretionary fiduciary could have liability for fiduciary breaches of the Provider.

Additional Information

The DOL published an informative fact sheet regarding the Final Rule.

If you have questions on this topic, contact your SGR Employee Benefits and Executive Compensation counsel.