Securing Your Retirement: Newly Proposed Department of Labor Fiduciary Rules
The Department of Labor (DOL) has proposed a new rule to enhance protection and transparency for financial advice within retirement plans. The Retirement Security Rule: Definition of and Investment Advice Fiduciary was drafted to update the definition of investment advice fiduciaries under the Employee Retirement Income Security Act (ERISA), supporting the best interests of plan participants.
“Requiring advisers to make recommendations in the savers’ best interest can increase retirement savers’ returns by between 0.2% and 1.20% per year. Over a lifetime, that can add up to 20% more retirement savings.” – The White House
Reforming the Definition of An Investment Advice Fiduciary
Recognizing the evolving responsibility that individual investors have managing their retirement savings, the DOL proposed some refinements to the five-part test (originally from 1975) for identifying fiduciaries providing investment advice for a fee.
The modernized approach ensures greater protection for retirement saver. Under the antiquated rule, fiduciary status often hinges on regularity and mutual understanding between the adviser and plan participant; however, the proposed rule offers protection to the individual by including all recommendations made as part of an adviser’s regular business practice.
The chart below compares the current 5-part test to the proposed approach.
| 5-Part Test 2023 Proposed Rule | 2023 Proposed Rule |
| Investment advice is provided: (1) for a fee (2) on a regular basis (3) pursuant to a mutual agreement, arrangement, or understanding with the plan or a plan fiduciary (4) as a primary basis for investment decisions with respect to the assets of the plan (5) on an individualized basis on the particular needs of the plan |
(1) investment recommendations are made to investors on a regular basis as part of the adviser’s business (2) recommendations are provided under circumstances indicating the recommendation is based on the particular needs or individual circumstances of the retirement investor and may be relied upon by the retirement investor as a basis for investment decisions that are in the retirement investor’s best interest |
Modifying Prohibited Transaction Exemptions
The DOL is also proposing three sets of amendments to prohibited transaction exemptions available to investment advice fiduciaries so that fiduciaries who use them must follow consistent and protective compliance requirements, including an obligation to act in retirement investors’ best interest.
1. Inclusion of Commodities and Insurance Products:
Current rules do not cover commodities and insurance products. The proposed rule will include these to ensure that all advice is in the participant’s best interest.
2. Rollovers from Employer Plans:
Mandates that advice about one-time events like rollovers must be in the investor’s best interest.
3. Available Investments:
Investments in an employer-sponsored plan must be selected in the best interest of plan participants.
Status of Proposed Changes
The proposed rule included a 60-day comment period that ended on January 2, 2024. After the 60-day period, the DOL will review the comments and draft the final rules.
Sources:
The White House, FACT SHEET: President Biden to Announce New Actions to Protect Retirement Security by Cracking Down on Junk Fees in Retirement Investment Advice, October 2023
U.S. Department of Labor, Fact Sheet: Retirement Security Proposed Rule and Proposed Amendments to Class Prohibited Transaction Exemptions for Investment Advice Fiduciaries, October 2023
U.S. Department of Labor, Fact Sheet: Retirement Security Proposed Rule and Proposed Amendments to Class Prohibited Transaction Exemptions for Investment Advice Fiduciaries, October 2023
Contact your Alliance Pension Consultants representative for insights into how this rule might impact your plan. We are happy to help you.