Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

Planned Changes to the Regulatory Definition of Fiduciary

The Employee Benefits Security Administration (EBSA) plans to amend the regulatory definition of “fiduciary.” A large number of plan sponsors rely on the services of pension consultants and financial asset appraisers. As such, in June 2010, EBSA will propose to amend the current definition to include these service providers, essentially making them subject to the fiduciary responsibility rules established by ERISA. According to Phyllis Borzi, Assistant Secretary of Labor for the EBSA, “The DOL is concerned about conflicts, the fact that there may be consulting services provided in a conflicted manner where the self-dealing restrictions presently do not apply.”

The current regulations state that consultants and investment advisers are generally not considered fiduciaries unless they exercise discretionary authority or control over a plan’s investment transactions or meet a five-part standard. One of the major concerns with these current fiduciary regulations is that they don’t require consultants to disclose all of their compensation arrangements to plan sponsors. Many consultants will avoid fiduciary duties by stating in their contracts that they provide information and non-fiduciary advice to plan sponsors who have fiduciary responsibility over the plan. Another concern is the third-party payments that some investment consultants receive when retirement funds hire money managers recommended by the consultants. Plan sponsors can expect more protection from financial advisers and consultants that act imprudently by subjecting them to ERISA regulations.

Joe Goodmiller