The U.S. Department of Labor ("DOL") recently announced that it will, once again, delay its proposal to redefine (and ultimately expand on) the term, "fiduciary," as it relates to employee benefit plans. Specifically, the DOL's re-proposal of this rule, what it is calling "Conflict of Interest Rule-Investment Advice," will be issued in January of 2015. The DOL made this most recent announcement on May 27 in its Semiannual Regulatory Agenda of Spring 2014 ("the Agenda").
The Abstract for the rule proposal, contained in the Agenda, provides that this rulemaking would
reduce harmful conflicts of interest by amending the regulatory definition of the term 'fiduciary' . . . to more broadly define as fiduciaries, employee benefits plans, and individual retirement accounts (IRAs) those persons who render investment advice to plans and IRAs for a fee within the meaning of section 3(21) of [ERISA] and section 4975(e)(3) of the Internal Revenue Code. The amendment would take into account current practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as changes that have occurred in the investment marketplace, and in the ways advisers are compensated that frequently subject advisers to harmful conflicts of interest.
The Agenda, at 14.
The DOL's first proposed expansion of the definition of "fiduciary" in October of 2010 was in the form of a proposed regulation. Specifically, the proposed regulation sought to expand the definition of "fiduciary," set forth in ERISA § 3(21)(A), to include any individual who provides advice regarding the value, management or purchasing or selling of securities or other property to an ERISA plan, even if that advice was not delivered on a regular basis or was not the primary reason for the plan's investment decision, as the rules currently require.
In 2011, after the rule faced criticism from representatives of the financial services industry, the DOL decided to re-propose the rule. Critics of these re-definitions have argued that such proposals are overly broad and likely to greatly interfere with the business practices of financial institutions that deal with employee benefit plans by, among other things, increasing their insurance costs and the potential for litigation.
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