Articles Tagged with Department Of Labor

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On June 9, 2017, the Department of Labor (DOL) regulation updating the definition of “fiduciary” for purposes of ERISA became effective, along with a series of new and updated prohibited transaction exemptions.  The DOL regulation expands the types of activities that can give rise to fiduciary status, and applies not only to plans subject to ERISA but also to self-directed IRAs.  While the DOL is still reviewing whether changes should be made to the regulation to reduce the regulatory burden, and both the DOL and Congress are considering more drastic action such as full repeal, for the time being the regulation is in effect.

A broad reading of the definition of “fiduciary” under the new rule could cause investment fund managers to become fiduciaries to ERISA and IRA investors in their funds, and to prospective investors, regardless whether a fund they manage is a “plan assets” fund.  Fund managers may need to take action now, notifying benefit plan investors, obtaining representations and/or amending subscription applications.

Private investment funds that limit ERISA plan and IRA investments to below 25% of each class of equity interests (or that qualify as a Venture Capital Operating Company (VCOC) or a Real Estate Operating Company (REOC)) are still exempt from ERISA with respect to most of their activities—their investment transactions and compensation arrangements are exempt from ERISA’s fiduciary rules and from the prohibited transaction restrictions of ERISA and the Internal Revenue Code.  However, under the new DOL regulation, certain types of marketing and outreach activities to new and current benefit plan investors could be viewed as “recommendations” to invest in (or continue investing in) a fund, and thus may become subject to the new fiduciary rules.

Not every marketing or outreach activity will give rise to fiduciary status, and an exemption is available for communications with financially sophisticated plan fiduciaries.  Please contact us to discuss how you can qualify for an exemption from fiduciary status and/or take necessary other action with respect to IRA and ERISA investors.

For more detailed information about the DOL fiduciary rule, please read our Alert.

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On April 14, 2015, the Department of Labor issued its much anticipated re-proposal of regulations defining and expanding the persons who are treated as ERISA fiduciaries.  Under the proposal, subject to certain exceptions, all persons who  provide investment advice or recommendations for a fee to an employer-sponsored  retirement plan, plan fiduciary, plan participant, IRA or IRA owner would be deemed “fiduciaries”.  Other than investment education and “order taking”, most other investment sales related activities will result in fiduciary status.  Some of these advisors are subject to federal securities laws, others are not.

Being a fiduciary means that the advisor must provide impartial advice and put the client’s best interest first and must not accept any compensation payments creating conflicts of interest unless the payments qualify for an exemption (newly proposed) intended to ensure that the customer is adequately protected.  If the regulations are finalized, compliance with the terms of the new exemption will be a necessary condition for continuing many of the compensation practices currently in use by the investment industry.

We expect to issue a Client Alert on the Proposal and new Rule.  If you have any questions, please feel free to contact our Funds or Employee Benefits attorneys.