In October 2010, the Department of Labor (DOL) issued proposed regulations expanding the definition of fiduciary. Investment advisers and service providers will have to examine the proposed rules to determine whether they fall under the broadened definition. This article provides a brief overview of some of the major provisions of the proposed rules. You should consult your attorney or service provider regarding the impact of the proposed rules on your arrangements.


ERISA currently defines a fiduciary as a person who exercises any discretionary authority or control with respect to plan management or disposition of assets, renders investment advice for a fee or other compensation or has any authority or responsibility to do so, or has discretionary authority or responsibility in the administration of the plan.

DOL regulations provide a five-part test (all of which must be satisfied) that defines the circumstances under which a person is deemed to render investment advice under ERISA. The test considers whether a person renders advice: (1) as to the value of securities or other property or makes recommendations as to the advisability of investing in, purchasing or selling securities or other property; (2) on a regular basis; (3) pursuant to a mutual agreement, arrangement or understanding with the plan or a plan fiduciary; (4) that will serve as a primary basis for investment decisions with respect to plan assets; and (5) that will be individualized based on the particular needs of the plan.

What Are Some of the Major Differences?

The proposed rules would:

  1. Define certain advisers as fiduciaries even if they do not provide advice on a regular basis;  
  2. Eliminate the requirement that the parties have a mutual understanding that the advice will serve as a primary basis for plan investment decisions;  
  3. Include advisers who perform appraisals and fairness opinions concerning the value of securities or other property. (which activities currently are excluded);  
  4. Provide exclusions if:
    1. The recipient of the advice knows or should reasonably know under the circumstances that the person is providing advice in his or her capacity as a purchaser or seller, whose interest is adverse to the interest of the plan as well as its participants or beneficiaries and that the person is not undertaking to provide impartial investment advice. To comply with this exclusion, the person seeking to avoid fiduciary status must demonstrate compliance with all the applicable requirements.  
    2. Defined contribution service providers who “simply” make available a platform of services and investments from which the plan fiduciary chooses with or without the assistance of the investment provider and discloses in writing to the plan fiduciary that they are not undertaking to provide impartial investment advice.  

Why Is the DOL Proposing the Change?

Among the reasons provided is the fact that the rules haven’t been changed since 1975, while the retirement plan community has changed dramatically, particularly shifting from defined benefit plans to defined contributions plans. The DOL regulations issued in 1975 narrow the definition as provided in ERISA, making it timeconsuming for DOL agents to substantiate fiduciary status. Additionally, the types and complexities of investment practices lend themselves to conflicts of interests that plan sponsors should understand. Changing the rules to add additional circumstances in which investment advice providers are subject to ERISA’s fiduciary standards would protect plan participants and beneficiaries.

The DOL also believes that amending the current regulation to define the circumstances under which a person is an ERISA fiduciary will discourage conflicts of interest, improve service value and enhance the government’s efforts to allocate its resources effectively. The preamble to the proposed regulations cited a 2005 Securities and Exchange Commission study that revealed that 50 percent of pension consultants examined - or their affiliates - had undisclosed conflicts of interest. The study also revealed there were a number of relationships with broker-dealers that raised various concerns regarding potential harm to pension plans.  

What It Means to Plan Sponsors

Initially, service and investment providers will bear the brunt of dissecting the proposed regulations and determining whether their current plan contracts/arrangements make them fiduciaries. The preamble indicates the government expects more service providers will be determined to be fiduciaries under the proposed rules. These service providers could experience higher costs of doing business, which could result in higher fees as well as service providers leaving the market.