How Will the DOL Rule Affect Your 401(k) Plans?

How Will the DOL Rule Affect Your 401(k) Plans?

February 15, 2017

Back in February 2015, President Obama asked the Department of Labor (DOL) to “update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests.” The DOL proposed its new regulations in April 2016 and Obama fast-tracked its implementation. The new rules were scheduled to be phased in April 18, 2017 - January 1, 2018. (1)

What Is The DOL Fiduciary Rule? (2)

Commonly known as the DOL Fiduciary Rule, it expands the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA). The new rule makes all financial professionals who work with retirement plans or give retirement planning advice legal fiduciaries.

Under the old rules, many financial professionals only had to follow the suitability rule and provide appropriate recommendations that met the client’s needs, even if they weren’t the best option for the client. As fiduciaries, they will have to act in the best interest of their clients and put their clients’ interests above their own. All fees and commissions must be communicated transparently and any potential conflicts of interest disclosed.

How The Fiduciary Rule Affects Your 401(k) (3)

The Fiduciary Rule affects how investment advice is provided to every 401(k) plan, including those of your clients. It is the plan sponsor’s responsibility to ensure the quality of advice that they and their employees are receiving regarding their plan. They also must verify that everyone advising them is engaging in a fiduciary relationship.

Most advisors already act in a fiduciary capacity, so there won’t be drastic changes in your relationship. However, if your client is involved with a broker, they could see big changes. The change from the suitability standard to fiduciary may include more paperwork, higher costs, and new limitations or exemptions.

If the plan sponsor works with a broker that pays commissions, they may be asked to sign a Best Interest Contract Exemption (BICE). This means that there are conflicts of interest inherent in the way the broker is compensated but they should be openly discussed prior to signing the BICE.

Plan sponsors need to ensure they fully understand the ramifications of a BICE before signing. If you, as the advisor, are required to have a BICE with your client, you need to clearly communicate the present conflicts of interest and how you will overcome them to do what is best for your client.

The DOL Rule also clarifies the difference between “education” and “advice.” For plan sponsors, this means that their HR employees will still be allowed to provide education regarding their retirement plans without being held to the fiduciary standard. It is important to review the education provided, though, to make sure that it doesn’t cross the line into advice.

Current Status Of The DOL Rule

On February 3, 2017, President Trump ordered the DOL to carry out an “economic and legal analysis” of the rule’s potential impact (4) in order to see if it would adversely affect retirement investors. The acting secretary of the DOL then said that he would be reviewing his legal options for delaying the applicability date. (5)

There is much speculation regarding whether or not the Fiduciary Rule will be repealed. Trump’s pledges to reduce regulation and his actions to undo much of what President Obama put into place suggest that there is a good chance he will do away with the rule completely.

What Happens If The Fiduciary Rule Is Repealed?

Even if the DOL Fiduciary Rule is never implemented as law, it will still have lasting effects. Most of the general public had never heard of a fiduciary prior to the abundance of media attention the rule received. Now many people and plan sponsors are aware of the differences between fiduciaries and those that abide by the suitability standard.

This new public awareness should work in favor of advisors who are fiduciaries. Potential clients will be more interested in working with a fiduciary because they know that their interests will always come first. If you are a fiduciary, make sure to emphasize that with current and prospective clients. Explain to them how you are different than others seeking to give them advice and the effects that your fiduciary status will have on their company’s 401(k) plans. You can also point out that if the Fiduciary Rule is implemented, or another like it in the future, they won’t experience any great upheaval in your services since you already comply with the tenets of the law.  

How I Can Help

Whether or not the DOL Fiduciary Rule is enacted, you should still always try to do what is best for your clients. In most cases, your clients are best served by partnering with a third party administrator to design and maintain their retirement plans. As a third party administrator, I can help you create unbundled plans that fit within ERISA guidelines and file the plan documents as well. Email me today at to discuss your client’s specific needs. And if the DOL Rule is enacted after all, I can help you comply with that as well!

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services, a 3(16) fiduciary. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses in the greater Phoenix area, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.