The US Department of Labor’s Employee Benefits Security Administration (EBSA) has issued a proposed rule that modifies the definition of who is a “fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA). The proposal also applies to the definition of a “fiduciary” of a plan, including an individual retirement account (IRA), under section 4975 of the Internal Revenue Code of 1986 (Code). The proposal widens the current definitions of who is a fiduciary and is intended to increase consumer protection for plan sponsors, fiduciaries, participants, beneficiaries and IRA owners.1

Under the EBSA proposal, those advising holders of 401(k) plan accounts, IRAs and other self-directed retirement plan accounts must follow the so-called “fiduciary standard” by only offering advice that can be shown to be in a client’s “best interest,” and by disclosing any potential conflicts of interest, as opposed to recommending products that are deemed to be broadly “suitable” but may reward the advisors more than competing, lower-fee investment funds.2

Client Responsibilities

If the proposal is adopted, Human Resource professionals and business line managers of our clients would be required to use increased scrutiny when selecting individuals to provide services to their company’s 401k plan and ensure that those employees providing advice to customer 401k accounts meet the requirements. The Code also protects individuals who save for retirement through tax-favored accounts that are not generally covered by ERISA, such as IRAs, through a more limited regulation of conduct these fiduciaries are subject to the prohibited transaction rules of the Code. Advisors who receive payments from companies selling funds they recommend, or who otherwise receive compensation that creates conflicts of interest, will have to rely on one of several proposed prohibited transaction exemptions under the proposal. These exemptions would allow advisors and account service providers to continue arrangements such as receiving revenue-sharing fees from mutual funds, but only if these fees are properly disclosed to their clients.

The statutory definition contained in section 3(21)(A) deliberately casts a wide net in assigning fiduciary responsibility with respect to plan assets. Thus, “any authority or control” over plan assets is sufficient to confer fiduciary status, and any person who renders “investment advice for a fee or other compensation, direct or indirect” is an investment advice fiduciary, regardless of whether they have direct control over the plan’s assets, and regardless of their status as an investment adviser and/or broker under the federal securities laws.3

2010 Proposal

In 2010, the Department proposed a new regulation that would have replaced the existing five-part test with a new definition of what counted as fiduciary investment advice for a fee. The general definition included the following types of advice: (1) Appraisals or fairness opinions concerning the value of securities or other property; (2) recommendations as to the advisability of investing in, purchasing, holding or selling securities or other property; and (3) recommendations as to the management of securities or other property.

A paid adviser would have been treated as a fiduciary if the adviser provided one of the above types of advice and either:

1.     Represented that he or she was acting as an ERISA fiduciary;

2.     was already an ERISA fiduciary to the plan by virtue of having control over the management or disposition of plan assets, or by having discretionary authority over the administration of the plan;

3.     was already an investment adviser under the Investment Advisers Act of 1940 (Advisers Act); or

4.     provided the advice pursuant to an agreement or understanding that the advice may be considered in connection with plan investment or asset management decisions and would be individualized to the requirements of the plan, plan participant or beneficiary, or IRA owner.

The New Proposal

The new proposed rule makes a number of revisions to the 2010 Proposal while retaining aspects of that proposal’s essential framework. The new proposal broadly updates the definition of fiduciary investment advice, and also provides a series of carve-outs from the fiduciary investment advice definition for communications that should not be viewed as fiduciary in nature. The definition generally covers the following categories of advice:

1.     Investment recommendations;

2.     investment management recommendations;

3.     appraisals of investments; and

4.     recommendations of persons to provide investment advice for a fee or to manage plan assets. Persons who provide such advice fall within the general definition of a fiduciary if they either:

a.     represent that they are acting as a fiduciary under ERISA or the Code, or

b.    provide the advice pursuant to an agreement, arrangement, or understanding that the advice is individualized or specifically directed to the recipient for consideration in making investment or investment management decisions regarding plan assets.

The new proposal includes several carve-outs for persons who do not represent that they are acting as an ERISA fiduciary. An adviser’s status as an investment adviser under the Advisers Act or as an ERISA fiduciary for reasons unrelated to advice are no longer factors in the definition. In addition, unless the adviser represents that he or she is a fiduciary with respect to advice, the advice should be provided pursuant to an agreement, arrangement, or understanding that the advice is individualized or specifically directed to the recipient to be treated as fiduciary advice.4


The public has a 75 day period for comment, after which there will be a public hearing, a public transcript of the hearing, another opportunity for comment, and a final review before a final rule is announced. The process is likely to take six to nine months.

The change will is of increasing importance as more and more Americans struggle to save enough for a secure retirement. Relatively few can rely on pensions, which guarantee a certain payment in retirement, and instead most workers now rely5 on 401(k)s and IRAs, which fluctuate based on investment decisions and the market. About a third of working-age people have less than $1,000 in savings and retirement set aside, and there is a $6.6 trillion6 gap between what Americans should have saved and what they have actually saved for retirement.


1.     “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule-Retirement Investment Advice,  A Proposed Rule by the Employee Benefits Security Administration on 04/20/2015, Proposed Rule,” Federal Register website. Access at:

2.     “DOL Seeks Comments on Proposed Retirement Advice Rule, Society for Human Resource Management, April 15, 2015. Access at:

3.     “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule-Retirement Advice, A Proposed Rule by the Employee Benefits Security Administration on 04/20/2015, Proposed Rule,” Federal Register website. Access at:

4.     Ibid

5.     “Charts; How The Increase Of 401(k)s Has Created Lots of Inequality,” ThinkProgress, September 3, 2013. Access at:

6.     “The Retirement Income Deficit,” Retirement USA, website. Access at:

Newsletter Author: Craig Unterseher

Newsletter Contact Person: Craig Unterseher

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