According to a proposed rule submitted to the Office of Management and Budget, the Department of Labor is officially looking to change the definition of fiduciary.
More specifically, the OMB’s Office of Information and Regulatory Affairs lists the DOL and the Employee Benefits Security Administration (EBSA) as proposing a rule that would “amend the regulatory definition of the term fiduciary set forth at 29 CFR 2510.3-21(c).
It would “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 amendment would consider practices of investment advisors, “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.”
In conjunction with this rulemaking, OMB said EBSA will also “evaluate available prohibited transaction class exemptions and consider proposing amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors.”
Rutledge remarks
It was widely anticipated that the Biden Administration would revisit fiduciary, said Preston Rutledge, former Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA).
“We knew they didn’t want just to leave the 1975 five-part test in place,” Rutledge explained. “However, given the administration’s emphasis on climate change across multiple agencies (SEC, Treasury, etc.) it’s also not a surprise that they’re rewriting the ESG and proxy rule. Those proposals are due earlier, which signals a greater priority on those two.”
He added the OMB’s announcement is “bureaucratic speak” for leaving options open to revisiting certain aspects of the fiduciary rule.
“As I said in February when they announced they would let the ‘Improving Investment Advice for Worker & Retirees’ exemption take effect, it’s an indication that the new administration will take a methodical and thoughtful approach as they review the recent EBSA guidance,” Rutledge noted. “I think not rushing is the wise way to go.
“I don’t think they’re saying they are going to do all those things, necessarily, but they have to disclose what they might do about it,” he concluded.
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.
