When the Department of Labor’s (DOL) fiduciary rule proposal came out last year, there was some concern that it would affect plan sponsors by requiring Best Interest Contracts (BICs) from advisers, even with one-time projects, such as defined benefit (DB) plan annuity purchases, that it would affect retirement education for participants, and even affect advice relating to health savings accounts (HSAs).
The final rule released this week, made some important changes in response to these concerns.
In a statement, Rich McHugh, vice president of Washington Affairs for the Plan Sponsor Council or America (PSCA), said, “Based on an initial review, it appears that the DOL has made some changes in the rule that should be helpful with respect to providing needed investment education to retirement plan participants, reforming the best interest contract exemption and making the rule more helpful to small employers.”
In discussing the final rule, Labor Secretary Thomas Perez said, “[F]or firms that have millions of existing customers that would require a BIC under the final rule, there are also changes. Unlike in the proposed version, firms can now simply send a notice that tells these clients that the firm has taken on new obligations for them as a result of the new fiduciary standard. An email or letter will suffice when it comes to alerting existing customers of the change.”
Robyn Credico, North America leader of defined contribution consulting at Willis Towers Watson in Arlington, Virginia, explains that under the final rule, recommendations to plan sponsors managing more than $50 million in assets (vs. $100 million in the proposed rule) will not be considered investment advice if certain conditions are met and hence will not require an exemption. There must be a written validation that the plan sponsor has the wherewithal to make investment decisions.
However, for plans with $50 million in assets or less, the plan sponsor and adviser will have to enter into a BIC explaining there are no conflicts of interest and the appropriate fees, Credico says. NEXT: Education and rollovers