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Fiduciary Duties

Investment Advice Exemption Confirmed

On February 12, 2021, the Department of Labor issued a press release confirming that the new fiduciary investment advice guidelines under Prohibited Transaction Exemption 2020-02 will go into effect on February 16, 2021.  The Department also confirmed that the temporary enforcement relief provided by Field Assistance Bulletin 2018-02 will remain in place until December 20, 2021.

The Biden administration previously issued a memo to regulatory agencies suspending new regulations issued during the waning days of the Trump administration.  The purpose of the suspension is to provide the incoming administration with the opportunity to review those regulations.   As a result, there was some question whether the Exemption would become effective.

DOL Finalizes Fiduciary Investment Advice Guidance

On December 15, 2020, the Department of Labor finalized its new guidelines for fiduciary investment advice.  Prohibited Transaction Exemption 2020-02 both clarifies the circumstances under which financial institutions and investment professionals are considered “fiduciaries” under ERISA and the Internal Revenue Code, and also establishes a new framework under which such fiduciaries may provide services and receive compensation.

The preamble to the final Exemption provides the Department’s long-awaited final interpretation of when investment advice – such as a recommendation to roll over retirement plan assets to an IRA (or between IRAs) – creates a fiduciary relationship under ERISA or the Code. The substantive terms of the Exemption allow investment advisers who are fiduciaries to receive compensation and engage in principal transactions that would otherwise violate prohibited transaction rules.

The Exemption applies to SEC- and state-registered investment advisers, broker-dealers, banks, insurance companies, and their employees, agents and representatives that are investment advice fiduciaries under the newly interpreted “five-part” test of fiduciary status.  It imposes certain conditions to protect the interests of retirement plans, participants, beneficiaries, and IRA owners.  The Exemption is set to become effective February 16, 2021, absent a delay by the Biden Administration.  Thus, employers will need to be aware of the Exemption and its conditions in their engagement of (and interactions with) plan service providers.

Plan Administration – A SECURE and CARES Act Reminder

The SECURE and CARES Acts provide a broad spectrum of required and optional changes that employers must evaluate with respect to retirement plan administration.  One impending change is the SECURE Act’s broader eligibility requirement for part-time employees in 401(k) plans, which becomes effective on January 1, 2021.  In addition, employers may be surprised to learn that some CARES Act distribution options were added to their plans automatically by their record keepers through a “default” process.   Thus, employers should review their plan’s administrative procedures to determine if (and how) changes under the SECURE Act and CARES Act were (and are being) implemented to ensure administrative compliance with the plan document.

 

Employee Benefits in the Age of COVID-19: Brief Answers to Some Common Health Plan Questions

As we are all now intimately aware, the coronavirus pandemic has changed the nature of the workplace, and all of the benefits, rights, and responsibilities arising out of employment.  We are operating under a new set of rules, and those rules are changing daily.  Employers’ efforts to manage their workforce in order to maintain fiscal viability while protecting the health of employees also affect benefits.  The cascading effect of these factors raises many thorny benefits questions.  We will summarize – and attempt to answer – a few of those questions here (based on the legal landscape as of March 31, 2020).

ERISA Fiduciaries Must Monitor Market Turbulence

The recent turmoil in the financial markets, while troubling for individual investors, also has potentially significant implications for ERISA fiduciaries. Individuals and committees who have investment authority over plan assets should reevaluate their portfolios in light of these developments.  Circumstances may not require a change in investment strategy, but ERISA’s prudence requirement requires fiduciaries to give immediate, thoughtful consideration to how those circumstances have changed.

Form CRS – A Reminder

The deadline by which SEC-registered investment advisers and SEC-registered broker-dealers are required to file Form CRS with the SEC and deliver the Form to retail investors is quickly approaching.  Firms registered with the SEC prior to June 30, 2020, must file the Form with the SEC no later than June 30, 2020.  In addition, firms are also required to deliver their Form CRS to new and prospective retail investors.  For retail investors who already have a brokerage or advisory account, Form CRS must be provided by July 30, 2020.

SEC Adopts Rulemaking Package – “Solely Incidental” Broker-Dealer Exclusion

On June 5, 2019, the Securities and Exchange Commission adopted a rulemaking package that applies to investment advisers and broker-dealers.

This is the fourth in a series of articles describing the SEC’s rulemaking package.  This article addresses the SEC’s Interpretation of the “Solely Incidental” Broker-Dealer Exclusion.  That exclusion allows broker-dealers to provide certain advisory services without becoming subject to regulation as investment advisers under the Advisers Act, as long as those services are “solely incidental” to the broker-dealers’ core business.  The SEC’s new interpretation of this exclusion provides some helpful guidance for broker-dealers and dually-registered firms.

SEC Adopts Rulemaking Package – Form CRS

On June 5, 2019, the Securities and Exchange Commission adopted a rulemaking package that applies to investment advisers and broker-dealers.  These rules include a new set of disclosure requirements to address retail investor confusion over brokerage and investment advisory services.

This is the third in a series of articles describing the SEC’s rulemaking package.  This article provides an overview of the Form CRS – Relationship Summary portion of the package.

SEC Adopts Rulemaking Package – Investment Adviser Standard of Conduct

On June 5, 2019, the Securities and Exchange Commission adopted a rulemaking package that applies to investment advisers and broker-dealers.  In a series of four articles, Spencer Fane LLP outlines the SEC’s rulemaking package.  Our first article summarized “Regulation Best Interest” a new standard of conduct governing broker-dealers.  In this second article, we describe the SEC’s interpretation of the standard of conduct that applies to investment advisers when they engage with their clients.

SEC Adopts Rulemaking Package – Regulation Best Interest

On June 5, 2019, the Securities and Exchange Commission adopted a rulemaking package that is applicable to investment advisers and broker-dealers.  The package includes two final rules and two interpretations – Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, Form CRS – Relationship Summary, and Solely Incidental Broker-Dealer Exclusion Interpretation.  The Regulation Best Interest and Form CRS requirements are effective 60 days after they are published in the Federal Register, with a transition period for compliance that ends on June 30, 2020.  The SEC’s interpretations are effective immediately upon publication in the Federal Register.  In a series of four articles, Spencer Fane LLP outlines the SEC’s rulemaking package.  This first article describes the Regulation Best Interest portion of the SEC’s package.

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