As background, on April 14, 2015, the U.S. Department of Labor (the “DOL”) released a proposed rule to revise the definition of “investment fiduciaries” under the Employee Retirement Income Security Act of 1974 (“ERISA”). Today, the DOL finally released the long-awaited final rule. The rule requires investment advisers to act in the best interests of participants and beneficiaries in retirement plans (e.g., 401(k) plans, etc.) and individual retirement accounts (“IRAs”).
According to the DOL, the purpose of the revised rule is to update (i.e., modernize) the “historic” fiduciary investment advice rules and regulations that were adopted with ERISA’s inception in 1974 and prior to the predominance of 401(k) plans and IRAs. The DOL felt that many financial advisers were providing advice that resulted in a failure to act solely in the interest of plans, participants, and beneficiaries.
We will be discussing the rule in further detail at our upcoming Workplace Seminars in Jacksonville on April 27th, Atlanta on May 3rd and New York on May 11th; however the impact that this final rule will have on plans, IRAs and investment advisers is unknown.
The following is a summary of some of the key provisions:
- The initial implementation period for the rule has been extended from eight months to one year.
- Full compliance is “phased in” and will not be required until January 1, 2018.
- The “best interest contract exemption” will not have to be signed until an account is actually opened.
- The required disclosures have been reduced (such as the elimination of the one-, five- and 10-year projections of returns and fees at the point of sale).
Congress will have 60 days to review the rule after it is published in the Federal Register.
Click here for the DOL’s Comparison Chart.
Prior client alerts regarding rule:
This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.