Investment committees responsible for oversight of, and investment decisions with respect to, system retirement plans should be briefed on new Department of Labor fiduciary duty regulations regarding conflict of interest. The new rules, effective April 10, 2017, are designed to ensure that retirement investment advice will be treated as coming within a fiduciary relationship.

The existence of a fiduciary relationship between the committee and an investment advisor (i.e., the provision of "fiduciary investment advice") can often supplement the prudence of committee oversight and decisions. Yet in some situations, it is conceivable that investment committees assume the existence of such a relationship when one may not actually exist. Under current ERISA rules, "fiduciary" is broadly defined to include persons who provide investment advice for a fee, regardless of whether that fee is paid directly by the customer or by a third party.

Under the new regulations, fiduciaries to retirement plans are required to act impartially and provide advice that is in their clients' best interest, not their own. In addition, these same fiduciaries are not permitted to receive payments creating conflicts of interest unless those payments comply with conditions (required by a "prohibited transaction exemption") designed to minimize the potential effects of a conflict.

In anticipation of the new regulations, the investment committee may wish to team with the general counsel to evaluate whether existing service agreements with identified investment advisors currently meet the standards to be applied after April 10, and, if not, to determine what changes are necessary to satisfy those standards. This evaluation would likely examine the contractual relationship with the advisor and the actions of, and specific nature of the communications from, the advisor to the committee. 

Corporate Law and Governance Update

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