Definition of Fiduciary Regulation (Investment Advice)
EBSA plans to enhance retirement security by amending the regulatory definition of "fiduciary" for plan investment advisers to include pension consultants and other plan advisers who do not meet the current regulatory definition, ultimately supporting the Secretary's good jobs for everyone policy.
Key Action: Proposed Regulation
The Department's EBSA plans to publish a proposed regulation in June 2010 to amend the current regulatory definition of "fiduciary" to include more persons, such as pension consultants, as fiduciaries. As a result, these persons become subject to the Employee Retirement Income Security Act's (ERISA) fiduciary responsibility rules, and will owe a duty of undivided loyalty to their plan clients.
Key Concern and Issues to be Addressed
An increasing number of plan fiduciaries rely on advice and recommendations from service providers such as pension consultants and financial asset appraisers in making significant investment-related decisions for their plans. However, the current regulatory definition of fiduciary limits ERISA's ability to protect employee benefit plans from advisers and financial asset appraisers that act imprudently, or that subordinate their clients' interests to the interests of others. Subjecting these persons to ERISA's fiduciary responsibility rules will help protect the interests of plans by fostering the provision of quality, impartial advice and recommendations.
Section 3(21)(A)(ii) of ERISA, straightforwardly provides that a person who renders investment advice for direct or indirect compensation is a fiduciary. The current regulatory definition, adopted by the Department in 1975, takes a much more limited approach, and institutes a five-part test, each element of which must be met for giving investment advice to be a fiduciary function. See 29 CFR §2510.3-21(c).
The current regulation has not been updated or modified since its adoption in 1975. However, since that time, practices within the employee benefit community and in the financial marketplace have changed significantly. Based on its experience in implementing the current regulation, the Department believes there is a need to re-examine the types of advisory relationships that should give rise to fiduciary duties on the part of those providing advisory services.