July 21, 2019

July 19, 2019

Subscribe to Latest Legal News and Analysis

July 18, 2019

Subscribe to Latest Legal News and Analysis

The ERISA Fiduciary Advice Rule: What Happens on June 9?

This is an update on the upcoming effective date of the "fiduciary rule" or "fiduciary advice rule" (the "Rule") that was issued under the US Employee Retirement Income Security Act of 1974 (ERISA). The Rule was published by the US Department of Labor (DOL) in April, 2016. The purpose of the Rule is to cause a person or entity to become a "fiduciary" under ERISA and the US Internal Revenue Code of 1986 (the "Code") as a result of giving of certain types of advice involving investment of assets of employee benefit plans, such as 401(k) or pension plans, or of individual retirement accounts (IRAs) and receiving compensation for that advice.

The Rule was originally intended to become effective April 10, but in April the DOL extended (the "Extension Notice") the effective date of the Rule for 60 days (until June 9), and provided for reduced compliance obligations under the Rule from that date through the end of 2017 (the "Transition Period"). The effective date for Prohibited Transaction Exemptions (PTEs), both new and amended, that are related to the Rule also was extended until June 9, and further transitional relief was provided with respect to certain of those PTEs.

In a May 23 Op Ed in the Wall Street Journal, Labor Secretary Acosta announced that the Rule would go into effect on June 9, as provided for in the Extension Notice, and that the DOL would seek additional public comment on possible revisions to the Rule.  He indicated that the DOL "found no principled legal basis to change the June 9 date while we seek public input."  The DOL also published, on May 23, FAQs on implementation of the Rule and an update of its previously-issued enforcement policy for the Transition Period. Therefore, it is important to review the rules that will go into effect on June 9.

Under the Rule, fiduciary status is triggered by investment "recommendations." It provides, in general, that if a person (1) provides certain types of recommendations to a plan or its participants and/or beneficiaries, or to an IRA owner (collectively, "Protected Investors"); and (2) as a result, receives a fee or other compensation (direct or indirect), then that person is providing "investment advice for a fee" and therefore, in giving such advice, is a fiduciary to the Protected Investor. Receipt of compensation tied to such recommendations by a person or entity that is a fiduciary could result in prohibited transactions under ERISA and the Code. Under the Extension Notice, the DOL provided simplified compliance requirements under the Rule for the Transition Period.

©2019 Katten Muchin Rosenman LLP

TRENDING LEGAL ANALYSIS


About this Author

 Gary W. Howell, Katten Muchin Law Firm, Financial Institutions Lawyer
Partner

Gary W. Howell focuses his practice in Employee Retirement Income Security Act (ERISA) fiduciary matters, tax-qualified retirement plans and ERISA litigation. A significant portion of Gary’s practice involves advising plans and investment managers on compliance with ERISA in managing plan assets. In this area, he provides advice on fee structures, fiduciary status, identification of plan assets, prohibited transactions and fiduciary duty. Gary has obtained prohibited transaction exemptions and advisory opinions under ERISA from the US Department of Labor. He works closely with other...

312-902-5610
Austin S. Lilling, Katten New York, nonqualified deferred compensation attorney, welfare plans lawyer
Partner

Austin S. Lilling focuses his practice on issues relating to executive compensation arrangements and employee benefit plans, including defined benefit pensions, 401(k)s, nonqualified deferred compensation, welfare plans, executive employment agreements, severance agreements, and retention and change in control arrangements. He deals largely with private equity and hedge funds and the compensation arrangements established by them. Austin has experience in designing and negotiating compensation arrangements, both for senior executives and employers, including employment agreements, severance agreements, change in control agreements, and equity and phantom equity compensation arrangements. He also has significant experience handling compensation matters in a transactional setting, including as they relate to private and public mergers and acquisitions, financial restructurings, and investment fund acquisitions and dispositions.

212.940.8510
Special Counsel

Gabriel Marinaro serves as special counsel in the Employee Benefits and Executive Compensation group. His practice focuses on all aspects of employee benefits and executive compensation. He regularly counsels publicly traded and privately held companies, tax-exempt organizations, and governmental entities on a variety of employee benefits and executive compensation matters.

Gabe regularly advises both employers and executives on a wide range of executive compensation matters, including drafting employment agreements, equity compensation...

312-902-5409
Richard D. Marshall, Katten Muchin, SEC Representation Lawyer, Finance Attorney, New York,
Partner

Richard D. Marshall focuses his practice on the representation of financial institutions and employees subjected to investigations by the Securities and Exchange Commission, Department of Justice, Financial Industry Regulatory Authority and state securities regulators. Rick also counsels broker-dealers, investment companies and investment advisers on regulatory issues, particularly relating to SEC and FINRA regulations. He also frequently counsels clients on compliance and risk management issues and the handling of inspections.

Rick provides...

212.940.8765
Andrew R. Skowronski, Chicago, Katten Muchin, employee benefits attorney, executive compensation lawyer
Associate

Andrew R. Skowronski concentrates his practice in employee benefits and executive compensation matters. He counsels and advises buyers, sellers and management in the context of corporate transactions, including mergers, acquisitions and financings. In addition, he represents companies in structuring broad-based equity and incentive compensation arrangements. Andrew also assists clients on a wide variety of employee benefit matters, including the design and administration of qualified retirement benefit plans and welfare benefit plans.

312.902.5230