How to Avoid 401k Litigation Attorneys on June 9

401k, lawsuit, fiduciary, department of labor
Take critically important steps to ensure compliance.

On May 22, 2017, Secretary of Labor Alexander Acosta confirmed something that we’ve argued since the DOL’s fiduciary rule was delayed in March.

Specifically, he wrote that June 9 is the date when anyone advising on retirement assets effectively becomes an ERISA fiduciary, subject to one of the strictest legal standards ever devised. No more delays. If you perform any following transactions you will effectively be an ERISA fiduciary on June 9:

  • Recommendations of investments, investment strategies, insurance and annuities, investment managers, other fiduciaries, distributions and rollovers, and IRA transfers;
  • Recommendations to ERISA plans, participants or IRA owners.

Fiduciary recommendations (including rollovers) will be subject to ERISA Prudent Man Rule and Duty of Loyalty and advisors are required to charge no more than a reasonable fee. As National Law Review writes “DOL has historically taken the position that a prudent process must be documented”.

This documentation must show that advisor is acting in the investors best interest.

DOL rule compliance documentation package must include:

  • Assessments of fees (including plan admin fees, expenses, any other hidden fees)
  • Quality of instruments assessment
  • Risk and Risk tolerance
  • Services offered by the advisors vs. those currently offered
  • Benchmarking the advisor fee to ensure it is reasonable for the services offered

“It’s important to note that, because rollover recommendations are now explicitly covered under ERISA, any recommendations to roll over must comply with the impartial conduct standards beginning on June 9,” Micah Hauptman, a fiduciary expert and a financial counsel at Consumer Federation of America told us. “Violation of these standards would constitute a prohibited transaction. In addition, because there is a private right of action under ERISA, an investor who is harmed based on a violation of these standards could directly enforce their rights.”

Thus, it is not the DOL who will enforce the fiduciary rule, but rather litigation attorneys.

Do not be the low hanging fruit for litigation attorneys.

Do not be without a documented prudent process.

You may think you are protected through current processes, but even many large organizations are unprepared and surprised by this announcement. Many firms have delayed work on the compliance falsely believing that the rule will simply go away.

Daniel Satchkov, CFA is president of RiXtrema, a research and fiduciary software company, authors of the IRAFiduciaryOptimizer – the DOL Fiduciary Rule compliance portal.

John Sullivan
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.

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