Rules and Regulations

Waiting for the DOL Rule: What to Know

By Tom Foster

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“Anticipation … anticipation … is makin' me late. Is keepin' me waitin’.”

Singer Carly Simon’s hit song, “Anticipation,” was once used by Heinz in a commercial demonstrating the thickness and richness of its ketchup. Ketchup lovers held their collective breaths while they waited for the dark red tomato condiment to slowly slide from its bottle onto a waiting hamburger. Although the commercial took just 30 seconds, the anticipation seemed to last forever.

It’s a lot like that for the introduction of the U.S. Department of Labor’s fiduciary rule, which imposes a “best interest” standard on financial advisors who sell retirement plans such as 401(k)s or IRAs. President Trump has vowed to reduce government rules and regulations, sparking considerable speculation about the fate of the new rule that is scheduled to take effect on April 10, 2017.

The new administration may take a range of actions, including delaying the rule for 60 days or longer. The rule may eventually be killed by the new administration, although the actual legal and regulatory mechanism for that approach is undetermined. It’s yet another reason for anticipation.

Whether the rule is introduced, delayed, spiked otherwise changed, financial advisors for the most part have a path to follow. Different broker-dealer firms have espoused specific approaches to addressing both the rule as well as its possible delay.

In complying with the rule as currently written, some firms have announced they will follow a fee-based approach; some firms are continuing to allow the payment of commissions for some products by implementing the Best Interest Contract Exemption (BICE); other firms are taking a combination of approaches.

In an uncertain regulatory environment, you want to work with a retirement plan provider or recordkeeper that has the capability to work as flexibly as possible and can follow the path your firm has laid out. You should stay in close touch with your local sales representative or wholesaler to understand how his or her firm can support you and your retirement plan clients.

In the meantime, many plan sponsors are looking for assistance to manage their fiduciary obligations, particularly as they relate to investments. It’s particularly true for smaller plan sponsors.

Recordkeepers that are most attuned to the current marketplace are offering enhanced fiduciary investment protection services. Most of these services rely on two sections of the Employee Retirement Income Security Act (ERISA) of 1974 – 3(38) and 3(21) – to offer plan sponsors fiduciary investment protection.

For sponsors that want the highest level of protection, a 3(38) fiduciary protection service may be appropriate. A quality 3(38) fiduciary protection service should automatically update fund choices, including at the sponsor level, to ensure compliance. That means sponsors can shift the burden of monitoring investment choices for compliance to a third party  The plan is responsible for monitoring the 3(38) advisor.

Most 3(38) fiduciary protection services require sponsors to select their investment options from a specific, limited list of approved funds. Some sponsors find that arrangement reassuring.

However, others want more investment flexibility so some services offer expanded lists of available funds, giving sponsors more latitude to customize investment choices for their plan. Advisors need to closely evaluate both the quality as well as the range of available choices when making a recommendation.

Meanwhile, some sponsors want greater discretion over fund selection. In these instances, it may be appropriate to consider a 3(21) fiduciary protection service whereby sponsors share their fiduciary investment responsibility with the 3(21) advisor and retain the ultimate decision-making authority.  Sponsors retain responsible for making ongoing investment line-up changes in order to maintain the core asset class requirements.

When opting for a 3(21) fiduciary protection service, sponsors are typically required to choose at least one investment option from each of four core asset classes (cash equivalent, domestic bond, domestic equity and foreign equity) from a pre-selected list

At least some sponsors are likely to be uncertain about which choice – 3(38) or 3(21) – makes the most sense for them.  If you would like support in analyzing the choices, ask if your provider offers a fiduciary risk analysis. MassMutual, for instance, offers an analysis tool to help advisors and sponsors assess their fiduciary needs and relative risk.

The fate of the DOL’s fiduciary rule is likely to remain uncertain for the foreseeable future. Meanwhile, you can ease your anticipation about the rule by following your firm’s guidance and working closely with your providers to obtain as much support for you and your clients as possible.


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Thomas Foster Jr. is Assistant Vice President, Strategic Relationships, for Massachusetts Mutual Life Insurance Co. (MassMutual).