ERISA gets Fiduciary regulations.
DOL Expands Definition Of Fiduciary
The U.S. Department of Labor issued final regulations on April 23, expanding the definition of "fiduciary" under ERISA. The final regulations alter the definition of "investment advice fiduciary" for purposes of Title I and Title II of ERISA to impose fiduciary duties on individuals or entities that make compensated recommendations related to the use of retirement assets to participants, beneficiaries and owners of qualified retirement plans and IRAs.
One hotly debated change brought about by the new regulations includes subjecting to ERISA fiduciary standards most recommendations related to rolling over assets from a workplace retirement plan to another plan or IRA. Previously, certain types of plan-level advice were not covered under the SEC’s Regulation Best Interest. The new rule effectively closes this gap by ensuring that fiduciary responsibilities are uniformly applied across all forms of investment advice related to retirement plans. This adjustment is crucial in standardizing the level of protection afforded to investors, aligning it more closely with the stringent standards expected in other areas of financial advice.
The "investment education" exception would allow an HSA provider or another entity, such as the employer, to provide the following information and materials to HSA holders, among others:
- Information about the features, terms or operation of the HSA;
- Information about the benefits of HSA participation;
- Information about the benefits of increasing contributions; and
- Information about the investment alternatives offered under the HSA including information about fund strategies and objectives, fees and expenses, trading restrictions, return information, and prospectuses.
Takeaways
- In order to avoid fiduciary status, HSA providers should avoid recommending how HSA account holders should invest their HSA funds. In addition, HSA providers should generally avoid recommending that an HSA account holder transfer funds from one HSA custodian to another because that type of advice may also constitute investment advice under the final rule.
- Employers should understand whether their providers of HSAs, MSAs, and Coverdells may provide investment advice regarding these accounts, and if so, whether the provider has a strategy to avoid violating ERISA's prohibited transaction rules.
- Insurance agents and brokers may wish to review the insurance policies and other products they typically recommend to insured life, disability, and group health plans as well as HRAs to evaluate whether the contract includes an "investment component" and thus whether they may need a strategy, in order to earn commissions in connection with the sale.
- Funded welfare plans, such as plans funded through VEBAs, that have investment programs should review whether any advisers that they use to invest plan assets qualify as or acknowledge fiduciary status and whether they comply with an exemption strategy in order to receive commissions and other fees in connection with investment recommendations.
Those subject to the new final regulations will have until the middle of September 2024 to comply with portions of the new rules, with the full suite of changes taking effect after a one-year transition period.
The DOL’s Final Fiduciary Rule Is Here. See What’s Inside! (forbes.com)
Commentary by: Raylea Stelmach
Edited by:
EPSHRM provides content as a service to its readers and members. It does not offer legal advice, and cannot guarantee the accuracy or suitability of its content for a particular purpose.
