On August 3, 2017, the Department of Labor (DOL) released a fourth set of FAQs related to its new “investment advice” fiduciary definition and related exemptions (Final Rule), which became applicable on June 9. Like the May FAQs, the three new FAQs are positioned as transition period guidance, although their content is not so limited.
408b-2 Disclosures during the Transition Period
DOL provided welcome and sensible guidance that, in the unique circumstances surrounding the Final Rule, “covered service providers” required under DOL Reg. 2550.408b-2 to provide disclosures to ERISA plan fiduciaries will not be obliged to update those disclosures to expressly state that they are now “fiduciaries” under the Final Rule until the date when fiduciary status must be disclosed under the Best Interest Contract and Principal Transaction Exemptions (currently January 1, 2018). Under the FAQs, current updates to those disclosures are required only in more limited circumstances.
• To the extent the services provided by the covered service provider have changed in response to the Final Rule, the description of services in the disclosures must be updated currently. DOL noted that communications about the Final Rule already provided to ERISA plans by their service providers may have described service changes adequately for 408b-2 purposes.
• Although not mentioned in the FAQs, any changes in response to the Final Rule to compensation arrangements described in 408b-2 disclosures presumably must be updated currently.
• To the extent that a 408b-2 disclosure expressly disclaims fiduciary status and that disclaimer is no longer accurate as of June 9, the FAQs require that the disclosure be currently updated (i.e., by striking that disclaimer and leaving the disclosure silent as to fiduciary status).
• DOL provided that these change disclosures will be treated as timely if made as soon as practicable after June 9, even if more than 60 days later (the benchmark prescribed in the 408b-2 regulation).
» DOL continues to struggle to provide needed guidance about the Final Rule on a timetable that businesses can operationalize. There are a number of service providers that, with an apparent August 8 deadline (60 days after the applicability date of the Final Rule), could not wait until August 3 for guidance and have already published 408b-2 updates without the benefit of the positions taken in the FAQs.
» The FAQs leave open the possibility that, if service providers update 408b-2 disclosures currently to describe service or other changes, they may need to update those disclosures again after January 1 to expressly use the “fiduciary” term (although logically that update could be coordinated with statements of fiduciary status required under other exemptions).
» The FAQs do not appear to address the case of a service provider that was an unintended “functional” fiduciary under prior law.
Contribution Advice is Not Fiduciary Advice
The FAQs also confirm that communications about the benefits of plan or IRA participation, of increasing plan or IRA contributions, and about methods and means plan sponsors might use to increase employee participation and contributions are not fiduciary investment advice under the Final Rule so long as they do not include recommendations about specific investments. This conclusion applies whether the communication is provided by the plan sponsor, a financial service provider or other providers. This is clearly the right result under both the language of the Final Rule and retirement policy, and DOL is to be commended for settling this point.
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