DOL Finalizes Regulation Defining 'Fiduciary' for ERISA

On April 6, 2016, the Department of Labor ("DOL") issued final regulations redefining the term "fiduciary" for purposes of the Employee Retirement Income Security Act ("ERISA"). After receiving extensive comments to the proposed regulations that were issued in 2015, the DOL made significant changes to the final fiduciary rule but retained the general approach of treating a broad scope of services and activities that could result in fiduciary status. The final regulations, among other things, extends the term fiduciary to someone providing investment advice to individual retirement accounts ("IRAs") as well as benefit plans covered by ERISA.

New Fiduciary Definition

Consistent with the definition of fiduciary set forth in the DOL's proposed regulations, the final regulations define a "fiduciary" as someone who provides the following types of advice for a fee or other compensation to a plan, plan fiduciary, plan participant or beneficiary, IRA or IRA owner:

(i) a recommendation as to the advisability of acquiring, holding or disposing of an investment or how an investment should be handled after it is rolled over, transferred or distributed from a plan or IRA; or

(ii) a recommendation on investment policies or strategies, selection of investment managers or with respect to rollovers, transfers or distributions from a plan or IRA.

In addition, to constitute fiduciary advice, the recommendation must be made by a person who:

represents or acknowledges that it is acting as a fiduciary; renders the advice pursuant to an agreement, arrangement or understanding that the advice is based on the particular investment needs of the recipient; or directs the advice to a specific recipient regarding the advisability of a particular investment decision. Modifications from Proposed Regulations

The final regulations made significant modifications to the carve-outs for types of investment-related communications that will not be considered to be fiduciary investment advice. These include: (i) clarifying what constitutes 'investment education' instead of investment advice; (ii) excluding appraisals from the definition of investment advice; [1] and (iii) expanding the exclusion for advice to independent fiduciary of plans with assets of at least $50 million who have financial expertise and recognize the conflicted advice being provided.

Best Interest Contract Exemption

Concurrent with issuing the final fiduciary regulations, the DOL has finalized the new...