Tuesday, May 30, 2017

Important Rule Change Affecting Employee Benefit Plans Takes Effect on June 9

A rule issued by the Department of Labor (DOL) significantly affecting those providing investment advice to retirement plans is set to go into effect on June 9, 2017. Some speculated that the rule, proposed by the Obama Administration, would not be implemented by the Trump Administration, particularly because the Trump Administration directed that the rule be reviewed in February and postponed the original date of its implementation.

The rule requires financial advisers to put their client’s interests above their own when providing advice on retirement plans. Advisers cannot conceal any conflicts of interests, requiring all fees and commissions to be explicitly disclosed to clients. The rule applies to any professional providing financial advice on an investment plan. Previously, only those charging a fee for their service were required to follow this rule. This means that brokers, financial planners, and insurance agents will now be subject to the rule.

The rule applies to anyone providing advice on defined-contribution plans (i.e. 401ks, 403(b)s, and SEPs), defined-benefit plans (i.e. pensions), and IRAs. It does not apply when a customer calls a financial adviser and requests a specific product or investment. It also does not apply when financial advisers provide education to clients.

Last week, the DOL issued a field bulletin, which you can access by clicking here, announcing a temporary enforcement policy for the rule. The policy explains that as long as investment advisers are working in good faith to comply with the rule, the DOL will not pursue claims against them for violating it. The temporary enforcement period is set to end on December 31, 2017, with the rule taking full effect on January 1, 2018. Don’t be surprised, however, if the DOL delays the enforcement of the rule, as the agency has requested additional public input.

If you have questions about how this new rule will impact your employee benefit plans, contact me for advice.