Wong also noted that the proposal will not only affect employer-sponsored arrangements, but also IRAs since it extends to the Department of Labor’s authority under Section 4975 prohibited transaction rules.
The proposed rule put out by the DoL’s Employee Benefits Security Administration more broadly defines the circumstances under which a person is considered to be a “fiduciary” by reason of giving investment advice to an employee benefit plan or a plan’s participants (see DoL Broadens Fiduciary Net).
Assistant Secretary of Labor for the EBSA Phyllis C. Borzi said the EBSA’s investigations and enforcement actions “have made it clear that current rules under ERISA and subsequent guidance have hindered the department from protecting participants and establishing who is a fiduciary and who is not.” The proposed rule changes the defenses some entities have used to get out of personal liability for faulty advice or conflicts of interest.
For example, Borzi said, appraisers providing evalutations for ESOPs; any investment adviser under the Investment Company Act of 1940; and those who hold themselves out as fiduciaries yet use current rules to avoid liability when something goes awry, will always be considered fiduciaries under the proposal.
The two main implications for those who find themselves a fiduciary under the new definition are that they will be subject to a duty of loyalty and prudence and they will be personally liable for a breach, according to Borzi. She added that the new definition will weed out those who are giving shabby advice.Borzi noted the new definition will really help small and medium-sized plans that face liability because they are relying on advice by an entity that could use current rules to avoid fiduciary status. “We will be able to hold accountable those who are really responsible for the plan injury,” she stated.