In late October of last year, we devoted one "Insights from Winston & Strawn" section of the Financial Services Update to the Department of Labor's proposed regulations re-defining the term "fiduciary" under ERISA. At the time we predicted the response would be vociferous and, without being too self-congratulatory, we turned out to be exactly right.
To recap briefly, the proposed regulations would change 35-year-old rules interpreting the meaning of "fiduciary" under ERISA, the federal law that governs private-sector employee benefit plans. The proposed rules would expand the definition to encompass parties that may have historically provided services to ERISA plans and IRAs (which are also covered by the rules), but on a non-fiduciary basis. For example, the definition of "fiduciary" would no longer require that investment advice be individualized to the plan or that the advice form the primary basis for the plan's investment decisionmaking. In addition, certain types of service providers, such as appraisers or those who provide fairness opinions, would be swept into the definition of "fiduciary" if the proposed rules are adopted.
Earlier this month, comments were due on the proposed regulations. The DOL received nearly 200 comment letters from a wide variety of commenters, including members of Congress, financial services firms, both large and small, law firms, individuals, and a wide variety of industry organizations including the Investment Company Institute, Securities Industry and Financial Markets Association, the Financial Services Roundtable, the Futures Industry Associate and the Defined Contribution Institutional Investment Association, to name just a few. Links to all of the comments can be found here. Comments.
In addition, the DOL has scheduled two days of hearings on the proposed rules on March 1st and 2nd. Nearly 40 witnesses are scheduled to testify, including financial services firms, such as JP Morgan, Morgan Stanley, and Fidelity, among others. Various industry associations are scheduled to testify as well. The agenda for the public hearing, including all those testifying, can be found here. Hearing Agenda.
Among the recurring themes from the comment letters are concerns that the proposed rules will make financial services on which plans currently rely either unavailable or more costly if the services are required to be performed on a fiduciary basis. Another concern is the need to coordinate with regulations being issued by other agencies, such as the various initiatives by the Securities and Exchange Commission and Commodities Futures Trading Commission under the Dodd-Frank Act.
Of course, it remains to be seen whether and how the rules will be finalized. Many commenters have urged that the proposed rules be withdrawn and others have encouraged the DOL to provide an ample transition period if the new rules are finalized. The ultimate fate of these rules may be of interest to those readers who provide services to ERISA plans or IRAs. We will continue to cover the rules' progress in the Financial Services Update. Your Winston & Strawn contact can also assist you if you have questions about the proposed rules and their potential effect on your business.