A number of regulatory initiatives undertaken by the Department of Labor (“DOL”) which are or may go into effect later this year have potential significance for future ERISA litigation. These developments, summarized below, are described in greater detail through the links provided to Goodwin Procter LLP’s Financial Services Alert.
Proposed Expansion of ERISA Fiduciary Status
The DOL has proposed a new regulatory provision describing when a person becomes a fiduciary as a result of providing investment advice for a fee. The current regulatory definition of an investment advice fiduciary under ERISA Section 3(21)(A)(ii) establishes a five-part test, including that the advice is provided on a regular basis, the advice is a primary basis for investment decisions and that it be individualized to the needs of the particular plan. See 29 C.F.R. Section 2510.3-21(c). The DOL proposed regulation would eliminate this five-part test, thereby expanding the universe of plan service providers who may be considered investment advice fiduciaries under ERISA. For more information about the proposed investment advice regulation, click here.
Hearings were held on the proposal on March 1 and 2, 2011. On March 28, 2011, the DOL released the transcripts of those hearings and announced that it would accept further comments through April 12, 2011.
Increased Fee, Investment and Service Disclosures
Two other DOL initiatives seek to increase the amount of disclosure of fees, investments and services related to certain ERISA-governed retirement savings and pension plans.
The first initiative is in the form of a now-final regulation that applies for plan years beginning on or after November 1, 2011. Under this regulation, plan administrators of plans allowing participant direction of investments are required to provide participants with detailed information about designated investment alternatives – both performance and fee information – as well as administrative fees assessed against plans. For more information, click here.
The second initiative is in the form of an interim final regulation that the DOL expects to finalize later this year. In its current form, the interim final regulation requires certain service providers of retirement plans to provide written disclosures to the responsible plan fiduciary describing, among other things, the services to be rendered to the plan and the direct and indirect compensation to be received from the plan and, in certain cases, plan assets investment vehicles. For a more complete description of this interim final regulation, click here.