Proposed Changes by the DOL to the Definition of "Fiduciary"

Proposed Changes by the DOL to the Definition of “Fiduciary”

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

As a follow up to my blog, “Planned Changes to the Regulatory Definition of Fiduciary,” the Department of Labor (DOL) has issued a proposed regulation that further defines when a person becomes a fiduciary of a plan by providing investment advice for a fee or other compensation, thus making them subject to the Employee Retirement Income Security Act (“ERISA”). The proposal was issued October 21, 2010.

The proposed changes define what is considered to be investment advice to include:
• appraisals
• fairness options
• the routine valuation of investments

Under the proposed changes, a person will be deemed to be providing investment advice if one of three types of advice is provided, which are:
• advice concerning the value of securities or other property
• recommendations to invest in, purchase, or hold or sell securities or other property
• recommendations regarding the management of securities or other property

When offering the above advice, in order to be considered a fiduciary, a person must also meet one of the following conditions;
• represent or acknowledge that he / she is acting as a fiduciary within the meaning of ERISA with respect to providing the advice
• a fiduciary with respect to the plan pursuant to the definition of “fiduciary” under ERISA other than the investment advice provision
• an investment advisor within the meaning of section 202(a)(11) of the Investment Advisors Act of 1940, whether or not the he / she is registered with the SEC as an investment advisor
• the advice is provided pursuant to an agreement, arrangement or understanding with a plan fiduciary, plan participant or plan beneficiary that such advice may be considered when making investment decisions in regards to plan assets

The proposed changes also define exceptions for persons who would be deemed not to be providing investment advice:
• if it can be demonstrated that the recipient of the advice knows or reasonably should  know that the advisor’s interests are adverse to the interests of the plan
• a person providing only general reports that merely reflect the value of an investment provided only for the compliance and disclosure requirements under ERISA

Bear in mind that these regulations have only been proposed at this time. You can submit written comments regarding the proposed changes to the DOL through January 20, 2011.

Joe Goodmiller