DOL Issues New Retirement Security Rule

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On April 23rd, the Department of Labor (DOL) issued a new Retirement Security Rule defining who will be considered an active fiduciary under the Employment Income Security Retirement Act (ERISA). The change was necessary because existing rules originally published in 1975 (before 401k plans existed) were no longer serving to protect retirement investors. Under current regulations, investment advice can be provided by individuals not required to adhere to the strict code of conduct for fiduciaries. In many cases, the application of these rules changed depending on the type of investment product offered. This created situations where certain advisors gave improper advice littered with harmful conflicts of interest. The new rule clearly defines who an investment advice fiduciary is and provides examples of covered recommendations. To help clients, prospects, and others, JLK Rosenberger has summarized the key details below.

Investment Advisory Fiduciary

Under the new rule, an individual is considered an investment advisory fiduciary if they directly or indirectly make professional investment recommendations to investors regularly as part of the business. Recommendations would indicate to a reasonable investor that the advice is based on a review of individual circumstances, reflects the application of professional or expert judgment, and may be relied upon to advance the retirement investor’s best interest.

Covered Recommendations

The new rule defines covered recommendations as those made for any securities transactions, other investment transactions, or investment strategy involving securities or other investment property. The language largely parallels the details in the SEC’s Regulation Best Interest.  The term “other investment property” refers to investments made in retirement plans that are not securities. These include non-security annuities, banking products, or digital assets (cryptocurrency, etc.) More specifically, a covered recommendation includes:

  • Advice about acquiring, disposing, or exchanging securities or investments, investment strategy, or how securities should be invested after the securities or other investments are rolled over, transferred, or distributed from a plan or Individual Retirement Account (IRA).
  • Recommendations on managing investments, including policies, strategies, portfolio composition, selection of other advisors, management services, and selection of investment account arrangements.
  • Guidance on rollovers, transfers, or distribution of assets from a plan or IRA, including recommendations on whether to participate in the transaction, amount, form, and destination of a rollover, transfer, or distribution.
One Time Advice

The new rule also closes a loophole for one-time advice. A financial services provider will be considered a fiduciary concerning a recommendation to roll over assets from a workplace retirement plan to an IRA if every condition of the fiduciary definition is satisfied. Since most have the largest savings in a workplace retirement account, this update should reduce conflicts of interest, with advisors solely recommending rollover funds into one of their institution’s financial products.

Impact on Plan Sponsors

The new regulations are expected to have a minimal impact on 401k and other plan types. However, they will certainly affect vendors providing third-party services. This means plan sponsors will need to ensure that service providers comply with the new rule and do not sell products/investments that are not in the best interest of participants. This will likely require a review and update of documentation and disclosure procedures.

We’re Here to Help

The new rule which goes into effect on September 23, 2024, will provide workers with a sharp increase in protections around investment advice received. This will ensure that any guidance given will be in the participant’s best interest. If you have questions about the information outlined above or need assistance with your next 401k plan audit, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.