Final Fiduciary Rule Goes to OIRA for Review

The Department of Labor sent the final version of its retirement security proposal to the Office of Information and Regulatory Affairs for review on Friday, March 8, 66 days after the comment period closed on January 2. The final rule will be published when OIRA, which sits within the Office of Management and Budget, finishes its review, which normally takes 60 to 90 days.

The proposal would extend fiduciary duties under the Employee Retirement Income Security Act to certain one-time recommendations, such as rollovers to individual retirement accounts, annuity sales and plan menu design sales to sponsors.

Under the published proposal, any financial professional who exercises discretionary authority over retirement assets would be classified as a fiduciary. Additionally, if the professional “makes investment recommendations to investors on a regular basis” and the recommendation is “based on the particular needs or individual circumstances” and can be relied on “as a basis for investment decisions that are in the retirement investor’s best interest,” then that advice is also fiduciary advice.

Though the text of the final rule will not be known until OIRA finishes its review, some modifications are plausible, if not probable, based on comments from DOL staff and the public comment file.

Educational Materials

One of the leading objections to the proposal, including from those who support the proposal in principle, is that it does not adequately protect educational materials and conversations that are not explicit recommendations or “call[s] to action.”

These can include brochures that briefly summarize investment options and general information about them, such as fees and past performance. A so-called “wholesalers’ carve-out” would protect those marketing investment products from triggering fiduciary obligations, according to commentary from industry associations.

Similarly, an educational exception would likely protect human resources and call center employees who answer participant questions on procedural items, such as taking a hardship withdrawal or loan, without recommending for or against them, according to advocates of such an exception.

This was one of the more common concerns in the comment file. Moreover, Tim Hauser, the deputy assistant secretary for program operations of the Employee Benefits Security Administration, explained in a public hearing on the proposal in December 2023 that the DOL does not intend to include communications that are educational in character.

Discretionary Authority

Hauser also suggested in an interview with PLANADVISER that the discretionary prong of the proposal, whereby any professional with discretionary authority over plan assets is a fiduciary with regard to any recommendation they make, may reach too far. Hauser did not elaborate on how he expected this part of the rule to change.

One comment letter, submitted on March 1 by Representative Gwen Moore, D-Wisconsin, may shed light on this concern.

Moore asked in her letter about “situations in which a financial institution provides brokerage services while another asset of the investor is managed on a discretionary basis by that financial institution or one of its affiliates. When a financial institution agrees with a customer expressly, clearly, and in writing that it is providing brokerage services only, would that agreement be determinative in that a fiduciary relationship with respect to that arrangement is not created?”

In other words, many fiduciary advisers are also registered as a broker. If professionals advise on plan assets but clearly express that they are providing a brokerage service in a specific instance, then the rule should make it clear they are not acting as a fiduciary.

Under Securities and Exchange Commission rules, one may be dually registered as both an adviser and a broker, but must disclose to a client in which capacity one is operating.

Compliance Date

Under the proposal, the rule would take effect 60 days after its entry into the Federal Register—a compliance date that many, including Moore, consider too soon.