Proposed ERISA Regulations Defining Fiduciary to Be Withdrawn and Modified


In a prior client alert, we reported that the Department of Labor (the “DOL”) had issued proposed regulations that would have significantly expanded the categories of persons considered fiduciaries to plans that are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Amid an outcry from the public and members of Congress over the scope and substance of the proposed regulations, the DOL announced on September 19, 2011 that it would withdraw the current proposed regulations and propose a modified version of the regulations in early 2012. Among the concerns expressed were those of broker-dealers, financial advisers and other financial industry professionals who worried that the new fiduciary standards issued by the DOL conflicted with those issued by the Securities and Exchange Commission (“SEC”) under Dodd Frank, and would reduce choices and increase costs to consumers and plan participants seeking investment advice.

The proposed regulations were issued under ERISA, which subjects fiduciaries to standards of prudence and loyalty to the plans for which they are fiduciaries as well as to conflict of interest rules, referred to as the “prohibited transaction” rules. The proposed regulations would have replaced the current regulations, which define “fiduciary” and which have been in effect for over 35 years. Under the proposed regulations, a person rendering advice to an ERISA plan would have been treated as a fiduciary if (i) the advice was considered investment advice, (ii) the arrangement was one in which the person was considered to be rendering the investment advice to a plan, and (iii) the person received a fee for such advice.

Please see full alert below for more information.

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