Thursday, October 21, 2010

DOL Proposed Regulation – Definition of the Term “Fiduciary”

29 CFR Part 2510

RIN 1210-AB32

DOL Proposed Regulation – Definition of the Term ``Fiduciary''

The DOL announced proposed regulations that more broadly define the circumstances under which a person is considered to be a fiduciary:

Washington – The U.S. Department of Labor's Employee Benefits Security Administration today announced a proposed rule to update the definition of "fiduciary" to more broadly define the term as a person who provides investment advice to plans for a fee or other compensation.

The department's proposed rule would amend a 1975 regulation that defines when a person providing investment advice becomes a fiduciary under the Employee Retirement Income Security Act. The proposed amendment would update that definition to take into account changes in the expectations of plan officials and participants who receive advice, as well as the practices of investment advice providers.

According to the proposal, the 1975 rule's approach to fiduciary status may inappropriately limit the department's ability to protect plans, participants and beneficiaries from conflicts of interest that may arise from today's diverse and complex fee practices in the retirement plan services market. The proposed rule is designed to remedy this limitation, and protect plan officials and participants who expect unbiased advice, by giving a broader and clearer understanding of when individuals providing such advice are subject to ERISA's fiduciary standards.

"The proposal will ensure that plans receive advice based on reliable information that protects the interests of plan participants and beneficiaries," said Phyllis C. Borzi, assistant secretary of labor for EBSA. "We believe that this proposal more closely reflects the statutory language of ERISA and the realities of the current investment marketplace, and therefore will ensure those who provide investment advice are held accountable as fiduciaries under the law."

Here is the text of the DOL summary:

SUMMARY: This document contains a proposed rule under the Employee Retirement Income Security Act (ERISA) that, upon adoption, would protect beneficiaries of pension plans and individual retirement accounts by more broadly defining 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. The proposal amends a thirty-five year old rule that may inappropriately limit the types of investment advice relationships that give rise to fiduciary duties on the part of the investment advisor. The proposed rule takes account of significant changes in both the financial industry and the expectations of plan officials and participants who receive investment advice; it is designed to protect participants from conflicts of interest and self-dealing by giving a broader and clearer understanding of when persons providing such advice are subject to ERISA's fiduciary standards. For example, the proposed rule would define certain advisers as fiduciaries even if they do not provide advice on a ``regular basis.'' Upon adoption, the proposed rule would affect sponsors, fiduciaries, participants, and beneficiaries of pension plans and individual retirement accounts, as well as providers of investment and investment advice related services to such plans and accounts.

DATES: Written comments on the proposed regulations should be submitted to the Department of Labor on or before January 20, 2011.

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