DOL Says to Expect Fiduciary Proposal in August

The Department of Labor has published its Spring Regulatory Agenda, which earmarks proposed rulemaking expected to come this year.

Among the proposed rules, which have been closely watched by the adviser community, is one which would address when a person offering employee benefit investment advice, including rolling over 401(k)s, is serving as a fiduciary and is therefore subject to stricter regulations under the Employee Retirement Income Security Act.

“This rulemaking would amend the regulatory definition of the term fiduciary set forth at 29 CFR 2510.3-21(c) to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries within the meaning of section 3(21) of ERISA and section 4975(e)(3) of the Internal Revenue Code,” the DOL wrote in the agenda. “The amendment would take into account practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest.”

The DOL wrote that the Employee Benefits Security Administration will also consider prohibited transaction class exemptions and will propose amendments, or create new exemptions, to ensure consistent protection of investors in employee benefit plans and IRAs.

Maureen Thompson, the vice president of public policy at the CFP Board, said in an emailed statement that the “CFP Board supports action by the Department of Labor to propose updates to the regulatory definition of fiduciary under ERISA. The existing five-part test needs to be updated to reflect the way workers today save and invest for a financially secure retirement.”

She continued, “We are in favor of rulemaking in this area but cannot provide further comments until we review the specific details of the proposed rule.”

Several other regulatory priorities were listed in the agenda.

By the end of June, EBSA anticipates holding stakeholder meetings relating to Section 101 of the Setting Every Community up For Retirement Enhancement Act of 2019, also known as the SECURE Act. Section 101 amended ERISA “to include a pooled employer plan as a type of single employer pension benefit plan.” These meetings will explore the need for regulatory guidance in this area.

Likewise, EBSA expects to begin stakeholder meetings concerning Section 127 of the SECURE 2.0 Act of 2022, which added retirement account-linked emergency savings accounts up to $2,500, sometimes called “sidecar accounts.”

June ought to be a busy month for EBSA, because it also intends to hold stakeholder meetings to implement Section 303 of SECURE 2.0, which requires the DOL to create a “lost and found” for retirement accounts. The lost and found is a database of retirement accounts and is intended to assist in matching “missing” participants with plans they have lost track of. The DOL has until the end of 2024 to implement such a database.