The Times are Changing: A First Look at the DOL’s New Fiduciary Paradigm

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On April 14, 2015, the US Department of Labor (the “DOL”) issued its proposed rule clarifying when individuals and institutions providing advice to employee benefit plans and individual retirement accounts (“IRAs”) will be fiduciaries for purposes of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the prohibited transaction provisions of the Internal Revenue Code (the “Code”). This detailed DOL proposal tackles the relationship between individuals who invest through IRAs, small plans and participant-directed plans and the investment professionals who provide advice and products to this growing segment of the market. It is being rolled out with considerable support from the White House, which signals that significant portions of the proposal may be adopted substantially as proposed.

Under the DOL’s new paradigm, a broader array of advice and services will result in investment professionals being fiduciaries for purposes of ERISA. Most significantly, the proposal will expand the reach of ERISA’s fiduciary duties and remedies by giving investment professionals the option, as a condition to relief from ERISA and the Code’s prohibited transaction rules, to agree to have ERISA’s fiduciary standards and remedies apply to them by contract in situations where they might not otherwise apply by statute.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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