On April 23, 2024, the Department of Labor (DOL) finalized a new rule designed to strengthen protections for retirement investors. This rule updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA).

What this means

Stronger Fiduciary Protections: This rule expands the scope of who is considered a fiduciary when providing investment advice to plan participants and IRA owners. Advisors must act in the best interest of participants when making investment recommendations.

Closing the “One-Time Advice” Loophole: Previously, a single recommendation might not have triggered fiduciary responsibility. Now, even one-time advice can be considered fiduciary advice if it meets the new criteria.

Rollover Recommendations Now Protected: The rule specifically clarifies that recommendations regarding rollovers from employer plans to IRAs are considered fiduciary advice.

Level Playing Field and Increased Transparency: The rule aims to create a more even playing field for investment professionals by ensuring everyone adheres to the same fiduciary standard. Additionally, it encourages advisors to disclose potential conflicts of interest.

Who is considered an Investment Advice Fiduciary under the new rule?

An advisor is considered a fiduciary if they meet all of the following criteria:

Provide investment recommendations: This includes advising on specific investments or investment strategies.

Recommendations are “professional,” which implies that the advice uses expertise and analysis specific to the investor’s situation.

Tailored to the investor: The recommendation considers the individual’s needs and circumstances.
Intended to be relied upon: The advice is presented as a trustworthy guide for investment decisions.
Compensation is involved: The advisor receives a fee or other form of payment for their services.

What steps should plan sponsors take?

The effective date for this rule is September 23, 2024. Here are some steps you can take to prepare:

Review your current investment options: Ensure all advisors servicing your plan know the new rule and understand their fiduciary responsibilities.

Communicate with participants: Inform participants about the new rule and its implications for their retirement savings.

Consider seeking legal or professional guidance: If you have questions about how this rule applies to your specific plan, consult with an ERISA attorney or financial professional.

The takeaway:

This new rule strengthens the protections afforded to retirement plan participants and IRA owners. By understanding the key points and taking proactive steps, plan sponsors can ensure their participants receive investment advice that prioritizes their long-term financial well-being.

Author Patricia L. Hutchinson Director of Retirement Plan Services

Patty has been involved in the financial services industry since 2006. She earned a bachelor of science degree in marketing and management from Northern State University in Aberdeen, SD, and an MBA from Colorado Technical University, Sioux Falls, SD.

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