Insights from the experts in investment fiduciary responsibility.

Follow up Q&A from our DOL rule webinars: Plan Sponsor Responsibilities

Posted by Duane Thompson on April 29, 2016

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Two weeks ago, we presented webinars covering the DOL’s recently released fiduciary rule. A recording of that webinar is now available. During that webinar we received over 80 questions. We were not able to answer all of those during the one hour session, but we have compiled and answered them here. The questions are categorized, and we will do separate blog posts to address all of the questions within a given category. These questions are not comprehensive of the rule, they only address the questions that were submitted. Think of them as an addendum to the webinar. For a more comprehensive view of the rule, we recommend you view the recording, as well as download our Executive Summary and Client Memo documents.

In our third Q&A blog post from the webinar, we are tackling those questions that have to do with how plan sponsors are affected by the new rule. Please note: the views expressed herein are strictly informational, do not represent an official position of fi360 on regulatory or legislative matters, and should not be relied upon as legal, compliance or investment advice. 

Q: Considering the existing 408(b)(2) disclosure requirement of the cost of services to plan sponsors, what does fi360 say about the plan sponsor’s liability with respect to the BIC and the platform carve-outs?
A: The plan sponsor, as the named ERISA fiduciary, has ultimate responsibility to ensure that fees are reasonable and services necessary in order to operate the plan.  Rule 408(b)(2) is intended to make it easier to meet a plan sponsor’s fiduciary duty of care by requiring services providers to proactively disclose that information. 

Similarly, the new Fiduciary Rule is intended to make it easier for the plan sponsor to identify who is a ‘real’ fiduciary and who is not.  The new disclaimers about fiduciary status and not providing impartial advice by platform providers may help, but nothing changes in terms of the plan sponsor’s ultimate fiduciary responsibility.  In theory, if the plan sponsor desires to delegate some of its fiduciary responsibility, then the fiduciary disclaimers by the platform provider might prompt the plan sponsor to select a 3(21) or 3(38) fiduciary adviser for assistance. 

Service providers to small plans – those under $50 million in assets – do not have the carve-out available for incidental investment advice associated with platforms or counterparty transactions.  Instead, they will have to rely on BICE and be required to act as fiduciaries.

Q:  If a retirement plan sponsor allows an advisor to give plan participants investment advice, does the plan sponsor have fiduciary liability for that advice under the Rule? 
A: Only to the extent that they must monitor their performance.   However, to a large extent plan sponsors are shielded from fiduciary liability as long as they follow a prudent process in selecting and monitoring the advisor’s activities.  However, the Rule does permit in-house employees of the plan sponsor, under certain conditions, to provide advice without being deemed to be an ERISA fiduciary.

Q: As a plan sponsor/fiduciary, how can I continue to tolerate a BICE/Seller Exemption allowing for conflicted comp arrangements? Aren't I obligated to mitigate conflicts (Practice S-1.3)? This seems to give advisors a free pass but Plan Sponsors are put in a catch-22 if they continue such an arrangement.
A: As long as the firm that relies on BICE complies with the conditions of the exemption for conflicted compensation arrangements, the firm can do business in that way.  But you are correct.  A plan sponsor committing a prohibited transaction without specific relief would get into big trouble.

Q: What are the top things sponsors need to do in light of the DOL’s final rule?
A: Sponsors should, at a minimum, review the materials available to employers on the DOL’s website, at and other updates on the new Rule.  Secondly, they should designate an appropriate staff person to take a fiduciary training course or hire a fiduciary advisor to provide them with an objective overview of the plan sponsor’s responsibilities.

Q: Can you please speak to how this rule will apply or if it does apply to plan sponsors of state universities, hospitals and ACOs which have matching employer contributions to their 403b or 401k plans which are typically non-ERISA plans.
A: Certain 403(b) plans – typically non-profits, education and governmental plans, are not subject to ERISA’s fiduciary standard or the DOL Rule.  We’re not aware of any 401(k) plans that are not ERISA plans.

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