Plans May View Advisers Anew Under Fiduciary Rule


Although retirement plans aren't the primary target of the Labor Department's fiduciary proposal, the new rules, if promulgated, could require plans to view their third-party advisers in a new way, an attorney told Bloomberg BNA. 

Andrew L. Oringer, partner with Dechert LLP, in New York, said Aug. 4 that although retirement plans aren't in the “crosshairs” of the proposed fiduciary rule, the increased number of third-party plan advisers with fiduciary responsibility resulting from the rule is likely to cause plans to change the way they view current providers and how they hire new ones.

In addition, he said the rules have the potential to push plan providers out of the plan marketplace or to compel them to increase their fees to offset their increased risk profile. 

Representatives of the Plan Sponsor Council of America and the ERISA Industry Committee told Bloomberg BNA Aug. 4 that although sponsors don't expect the rules to have a great impact on plans, there is concern about the potential for participants of increased costs and the limitation of access to educational services. 

Plan Sponsors Have Co-Fiduciary Risk 

Even though the DOL's proposed rules aren't directed at plan sponsors, they could be concerned about potentially becoming co-fiduciaries with their plan service providers, Oringer said. 

To be subject to co-fiduciary liability with a service provider, a plan sponsor or fiduciary would need to participate knowingly in a breach or have knowledge of the provider's fiduciary breach and fail to act on that knowledge, Oringer said. While sponsors may have legitimate concerns, actual co-fiduciary liability is unlikely to arise on this basis short of instances where breaches are “screaming out,” and the sponsor fails to act, he said. 

Oringer said plan sponsors won't necessarily have potential fiduciary liability when their participants roll over their plan assets upon retiring or leaving for another employer. The DOL seems most concerned with the situation in which the sponsor has an arrangement with the rollover provider or gets some other kind of benefit by virtue of a participant's rollover, he said. 

Providers May Leave Marketplace 

Furthermore, Oringer said plans should be concerned that their providers' availability may be reduced. Even if plan advisers determine that their business practices are permitted under the proposed rule, they may decide not to serve plans or to continue serving them while charging a higher fee, he said. It may be that many larger financial institutions stay in the business while a number of smaller ones decide not to, he said. 

Adding to the complexity, he said, is the fact that plan providers will often be impacted in turn by the decisions of subcontractors or subadvisers, that may stop providing plan-related services or raise their fees. 

Kathryn L. Ricard, senior vice president for retirement policy with ERIC, said that, because many plan service providers would become fiduciaries as a result of the proposed rule, there is a strong chance that this will increase costs to plan participants. She said she didn't believe that large plan sponsors would be impacted dramatically by the rules, given the economies of scale that large plans have in the retirement plan marketplace.

Excerpted from a story that ran in Pension & Benefits Daily (08/05/2015). 

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