Benefits Report:​ Special Alert​

INVESTMENT ADVICE FIDUCIARY RULE, ROUND THREE

Retirement Security Rule: Definition of an Investment Advice Fiduciary & Proposed Amendment to Prohibited Transaction Exemption 2020-02​

Yatindra Pandya & Robert Gower

NOVEMBER 30, 2023

Introduction

On October 31, 2023, the Department of Labor (DOL) released its proposed rule (the “Proposed Rule”) providing a draft new regulatory definition of an “investment advice fiduciary” under the Employment Retirement Income Security Act of 1974 (ERISA)..

The Proposed Rule breathes new life into the DOL’s decades-long effort to reform the definition of who may be considered a fiduciary by providing investment advice for a fee or other compensation. The drafting of such a rule is no small feat. Prior attempts ultimately failed, with a 2010 proposed rule being withdrawn by the DOL, and a 2016 final rule (2016 Fiduciary Rule) being vacated by the Fifth Circuit Court of Appeals in 2018.


The challenges in updating the definition of “investment advice fiduciary” are numerous. First, the existing definition is almost 50 years old (issued in 1975) and reflective of a world in which defined benefit plans were dominant. With the vast majority of retirements now housed in participant directed defined contribution plans, reconsiderations are warranted. Simultaneously, there is a desire not to overhaul the definition so extensively that it overcomplicates or overburdens the process of rendering investment advice to the point where rendering advice becomes unfeasible. In its opinion vacating the 2016 Fiduciary Rule, the Fifth Circuit Court of Appeals reasoned that the DOL swept too broadly in defining “investment advice fiduciary” and extended beyond those “touchstone” relationships necessitating trust and confidence.

Key Takeaways:

  • The Proposed Rule would replace the existing 1975 Regulation, applying a modern approach to “fiduciary investment advice,” thereby capturing more relationships the DOL believes should be subject to a fiduciary standard.
  • The Proposed Rule will attempt to address Fifth Circuit Court of Appeal concerns that led to the demise of the 2016 Fiduciary Rule by applying a context-based approach to what constitutes fiduciary advice.
  • The broader proposed rulemaking package will streamline conflicted investment advice – prohibited transaction exemptions to a single standard, eliminating complexities and disparities.
  • The DOL believes the proposed rulemaking package will better honor legitimate retirement plan investor expectations that they can place trust and confidence in the advice provider and their recommendations, and providers will be subject to a clearer and more level playing field.
  • The period for public comment closes on January 2, 2024.

Chambers & Partners USA 2022 Recognizes Trucker Huss for Employee Benefits & Executive Compensation and ERISA Litigation

We are pleased to announce that we have been FPO remedial programs; advising and defending fiduciaries regarding their obligations and liabilities; and structuring qualified plan.

The following were also individually recognized:

Director
Director
In its recognition, Chambers USA stated FPO of the Government Affairs Committee of the American Society of Pension Professionals and Actuaries (ASPPA), and he is a past member of both the Executive Committee and the Board of Directors of ASPPA.

<span data-metadata=""><span data-buffer="">The Proposed Rule

The Proposed Rule applies a fiduciary standard where advice is rendered in one of three contexts:

(1) The person either directly or indirectly (e.g., through or together with any affiliate) has discretionary authority or control, whether or not pursuant to an agreement, arrangement, or understanding, with respect to purchasing or selling securities or other investment property for the retirement investor;

(2) The person either directly or indirectly (e.g., through or together with any affiliate) makes investment recommendations to investors on a regular basis as part of their business and the recommendation is provided under circumstances indicating that the recommendation is based on the particular needs or investor as a basis for investment decisions that are in the retirement investor’s best interest; or

(3) The person making the recommendation represents or acknowledges that they are acting as a fiduciary when making investment recommendations.

A recommendation for these purposes is defined as:

  • Recommendations involving securities, other investment property, and investment strategy, including recommendations as to how securities or recommendations on rollovers, benefit distributions, or transfers from plan or IRA;
  • Recommendations on strategies, management of securities or other investment property, and account types, including recommendation on the selection of other persons to provide investment advice or investment management; and
  • Recommendation regarding proxy voting appurtenant to ownership of shares of corporate stock; 1

Super Lawyers Recognizes 15 Trucker Huss Attorneys for 2018

Every year Super Lawyers identifies FPO of the Government Affairs Committee of the American Society of Pension Professionals and Actuaries (ASPPA), and he is a past member of both the Executive Committee and the Board of Directors of ASPPA. Nick frequently speaks at conferences held by ASPPA, WP&BC, the National Institute of Pension Administrators (NIPA) and other industry organizations.

 

The following were also individually recognized:

Trucker Huss Super Lawyers 

—Northern California

  • Barbara B. Creed

  • R. Bradford Huss

  • Clarissa A. Kang

  • Mary E. Powell

  • Tiffany N. Santos

  • Barbara B. Creed
  • R. Bradford Huss
  • Clarissa A. Kang

  • Mary E. Powell

Top 100 Attorneys

  • R. Bradford Huss

Trucker Huss Super Lawyers 

—Southern California

  • R. Bradford Huss

Northern California Rising Stars

  • Barbara B. Creed

  • R. Bradford Huss
  • Clarissa A. Kang
  • Mary E. Powell

Southern California Rising Stars

  • Barbara B. Creed


Footnotes

  1. There is also a special rule for smaller organizations regarding comparable data. If the organization has average annual gross receipts less than $1 million, data on compensation paid by three comparable will be sufficient.
  2. See the article in our July 2022 Benefits Report at page 6, FICA Tax Withholding and Reporting for Section 457(b) and 457(f) Nonqualified Deferred Compensation Plans.
  3. The deferred compensation would be subject to Social Security taxes up to $160,200 but the combined employee and employer Social Security tax rate is 12.4%, much lower than the 21% excise tax

TRUCKER HUSS WEBINAR: Demonstrating Effective Qualified Plan Governance

Presenters:

Robert Gower and Zachary T. Isenhour

Date:

Tuesday, Ocober 17, 2023


10:00 – 11:00 AM PDT

Register Here:

Prior to entering private practice, Nick worked for the IRS in the Employee Plans and Exempt Organizations Division (now known as the Tax Exempt & Government Entities Division or TE/GE Division), where he served on the Technical Review Staff as a Senior Reviewer for both determination and examination cases, and as a technical resource for the Division. Ultimately, Nick became the Coordinator of the IRS’ Western Region Walk-in Closing Agreement Program, which is now part of the IRS’ remedial program known as the Voluntary Correction Program or VCP.

Discussion Topics Include:

  • 
Committee structure and membership

  • Committee character fundamentals

  • Minutes and other documentation

  • Delegations and service providers

  • Cybersecurity

Questions you would like addressed during the webinar are welcome — send to: webinars@truckerhuss.com

This program is eligible for MCLE credit.

<span data-metadata=""><span data-buffer="">The Legal 500 Recognizes Trucker Huss for ERISA Litigation in 2022

Trucker Huss APC is pleases to announce FPO worked for the IRS in the Employee Plans and Exempt Organizations Division (now known as the Tax Exempt & Government Entities Division or TE/GE Division), where he served on the Technical Review Staff as a Senior Reviewer for both determination and examination cases.


Ultimately, Nick became the Coordinator of the IRS’ Western Region Walk-in Closing Agreement Program, which is now part of the IRS’ remedial program known as the Voluntary Correction Program or VCP.

The Trucker Huss Benefits Report is published monthly to provide our clients and friends with information on recent legal developments and other current issues in employee benefits. Back issues of the Benefits Report are posted on the Trucker Huss website (www.truckerhuss.com)


Editor: Nicolas J. White, nwhite@truckerhuss.com


In response to new IRS rules of practice, we inform you that any federal tax information contained in this writing cannot be used for the purpose of avoiding tax-related penalties or promoting, marketing or recommending to another party any tax-related matters in this Benefits Report.

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