On Thursday, October 28, 2010, the US Department of Labor’s Employee Benefits Security Administration (“EBSA”) issued a proposed rule that, upon adoption, would more broadly define the circumstances under which a person would be considered a “fiduciary” by reason of (1) giving investment advice to an employee benefit plan or (2) plan participants. The DOL is considering this “broadening” to take into account the significant changes in the financial industry and the changing expectations of plan sponsors and plan participants since the DOL issued a 1975 regulation that defines when a person provides “investment advice.” The DOL is accepting written comments on the proposed regulations through January 20, 2011.
As we have discussed in previous Updates and during our Annual Employment Seminars, the Employee Retirement Income Security Act of 1974 (“ERISA”) provides that a person is a fiduciary with respect to an employer-sponsored welfare or qualified retirement plan to the extent that he or she (1) exercises any discretionary authority or control regarding the management of the plan or exercises any authority or control over the management or disposition of plan assets, (2) renders investment advice for a fee or other direct or indirect compensation with respect to any plan money or property, or (3) has any discretionary authority or responsibility for the plan’s administration.
Although “renders invest advice” for “a fee” appears to have created a two-part test, the DOL issued a regulation in 1975 that narrowed the “renders invest advice for a fee” language by creating a five-part test that must be satisfied to determine if a person should be considered a fiduciary by rendering investment advice. As the proposed rule indicates, with the shift from defined benefit plans to defined contribution plans and an increase in the number and complexity of investments products and services available to plans, the DOL believes that amending the regulations to establish additional circumstances whereby an investment provider would be considered a fiduciary under ERISA would better protect plan participants and their beneficiaries.