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2nd Set of COI FAQs Tackles Technical Issues

Nevin Adams

The Department of Labor (DOL) released a much-anticipated second set of fiduciary regulation FAQs on Friday the 13th.

These frequently asked questions (FAQs) anticipated since last fall, focus particularly on specific technical questions raised by financial service providers. Okay, technically they are the third set of FAQs, but unlike the ones focused on consumer protections issued the same day, these are focused on investment advice concerning ERISA-covered plans, IRAs and other plans covered by Code Section 4975(e)(1).

The DOL had last issued FAQs on the fiduciary regulation in October, in a series of 34 questions largely focused on the particulars of the Best Interest Contract Exemption, or BICE.

What’s Inside?

The most recent document covers 35 questions over the course of 17 pages, covering things such as:

  • investment recommendations covered under the rule;

  • investment education (more specifically the line between non-fiduciary investment education and fiduciary recommendations);

  • what constitute “general communications” (including presentations at industry conferences, so-called “free meal” seminars, communications about rollovers, and the benefits of contributing more and maximizing the employer match);

  • TPA recommendations of recordkeepers (the TPA recommendation of a recordkeeper is not investment advice if they don’t recommend funds on the platform);

  • the liability of an adviser (or financial institution) for investment decisions made against the adviser’s recommendation; and

  • the availability of the platform provider provision – including the notion that a group annuity contract could constitute a “platform or similar mechanism” within the meaning of the fiduciary rule (as an example noting that a life insurance company could rely on the platform provider provision in offering a range of investment alternatives to a 401(k) plan sponsor as part of a group annuity product that included recordkeeping services).

Interactive Tools

They also clarify that if a DC plan service provider’s interactive investment tool asks plan participants to input data (such as age, expected retirement date, current retirement savings, annual retirement contributions, current tax rate, estimated retirement tax rate, etc.) and then generates estimated future retirement income needs of the participant, could be treated as investment education and not fiduciary investment advice.

The FAQs clarify that the independent fiduciary exception does not require that the $50 million be attributable to only one plan or involve only plan assets (specifically citing a situation involving the chief financial officer of a company that is a plan fiduciary with management or control of a company plan that has $42 million in total assets and who also is responsible for management of $10 million in cash and securities held in the company’s treasury department).

Do the FAQs answer all the outstanding questions about the new regulations? Surely not — but we’re (particularly recordkeepers) somewhat closer to knowing what we need to know.