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What Plan Sponsors Need to Know About the Fiduciary Rule

How employers can protect themselves as the June 9 deadline looms.

The June 9 implementation date of the fiduciary rule’s impartial conduct standards will require advisors to 401(k) plans with less than $50 million in assets to act in their clients’ best interests.

Although much of the rule’s impact will be borne by advisors and plan record keepers, the expanded definition of a fiduciary will affect plan sponsors, who have been held as fiduciaries since the Employee Retirement Income Security Act was passed more than 40 years ago.

If a call center employee is accused of giving fiduciary level advice that fails the impartial conduct standards required on June 9, then the sponsor faces potential liability for having failed its duty to monitor the provider. (Photo: Getty)

 

Heightened monitoring responsibilities on service providers

One of the rule’s primary purposes is to assure that 401(k) investors don’t receive conflicted advice when it comes time to roll over assets to IRAs.

When Labor amended and delayed the first scheduled implementation date to June 9, it relieved the regulated community from the requirement of explaining to investors and employers, in writing, their role as fiduciaries.

HR will have to be careful not to be overly helpful and step over the fiduciary boundary. (Photo: Getty)

 

Heightened monitoring responsibilities on HR

 The rule attempts to clearly separate non-fiduciary investment education from fiduciary recommendations.

Whether or not sponsors will face new avenues of litigation under the rule remains to be seen -- but the rule does add to the list of potential violations that can be very hard to defend. (Photo: Shutterstock)

 

Protection amid the uncertainty

Admittedly, DeMatties says much of the speculation on new liability is theoretical. Whether or not sponsors will face new avenues of litigation under the rule remains to be seen.

But the rule does add to the list of potential violations that can be very hard to defend, he says.

Originally published on BenefitsPro. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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