DOL planning rule-making on ‘fiduciary' definition

June 14, 2021

The Department of Labor Department under the Biden administration is looking to make its own stamp on the fiduciary debate, much like the Obama and Trump administrations before it.

The Labor Department plans to issue a proposed rule on the definition of "fiduciary," according to its semiannual regulatory agenda, released June 11.

The rule-making would amend the regulatory definition of the term fiduciary "to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries" within the meaning of the Employee Retirement Income Security Act and the Internal Revenue Code, according to a Labor Department explanation.

Moreover, the amendment would "take into account practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest," the Labor Department said.

The Employee Benefits Security Administration will also evaluate available prohibited transaction class exemptions, and consider proposing amendments or new exemptions to "ensure consistent protection of employee benefit plan and individual retirement account investors," the Labor Department added.

The EBSA plans on issuing a notice of proposed rule-making on the fiduciary issue by December, according to the agenda.

Also included in the agenda are plans to revisit the Labor Department's "Financial Factors in Selecting Plan Investments," which stipulates that ERISA plan fiduciaries cannot invest in "non-pecuniary" vehicles that sacrifice investment returns or take on additional risk, and the "Fiduciary Duties Regarding Proxy Voting and Shareholder Rights," which outlines the process a fiduciary must undertake when making decisions on casting a proxy vote. Both rules were promulgated under the Trump administration, but in March, the new Biden administration announced it would not enforce the rules.

The department is also working on a proposal concerning Form 5500s. The Setting Every Community Up for Retirement Enhancement Act, which was signed into law in late 2019, requires implementation of a consolidated annual report for certain groups of similar plans by no later than Jan. 1, 2022, that should apply to Form 5500 annual return/reports for plan years beginning after Dec. 31, 2021, the Labor Department noted in a description.

Also, a final rule on lifetime income illustrations is expected by July. In August 2020, the Labor Department, as required by the SECURE Act, unveiled an interim final rule outlining how plan sponsors would convert participants' account balances into an estimated monthly income stream at retirement.

Under the interim final rule, retirement plans would provide lifetime income forecast illustrations using prescribed assumptions — based on information like a participant's marital status and assumed age at the start of the annuity. But during a comment period last year, stakeholders made repeated calls to amend the assumptions used to calculate lifetime income projections.