In November 2023, the U.S. Department of Labor released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs (including transfers). On March 8, 2024, the DOL sent the final rule to the Office of Management and Budget in the White House.
Key Takeaways
-
- The DOL’s proposed fiduciary regulation includes a new and expanded definition of when a representative of a broker-dealer, investment adviser, bank or insurance company will become a fiduciary under ERISA and the Internal Revenue Code.
- The new definition starts with whether a “recommendation” has been made. If a recommendation results in fiduciary status, but does not include a conflict of interest, the only purpose of the definition is to determine whether ERISA’s fiduciary standards apply to advice to ERISA-governed retirement plans (including participants in those plans). It would have no effect under the Code (e.g., IRAs) in that case.
- However, if a fiduciary recommendation is conflicted, it will be a prohibited transaction under ERISA and the Code, which would necessitate compliance with the conditions of a prohibited transaction exemption (PTE).
- This article discusses the definition of “recommendation.”
The preamble to the proposed fiduciary regulation describes the significance of a recommendation as follows:
Whether a person has made a ‘‘recommendation’’ is a threshold element in establishing the existence of fiduciary investment advice.
