December 15, 2020

401K Specialist Turns to Fred Reish to Explain DOL’s Final Fiduciary Rule

In an exclusive interview with 401K Specialist, benefits and executive compensation partner Fred Reish discussed the U.S. Department of Labor (DOL)’s announced new exemption for investment advice fiduciaries.

Reish first highlighted that the final exemption retains much of what was in the proposed rule introduced in June 2020. “It looks to me like the final rule is substantially similar to the [June] proposal. In other words, while there are changes, they do not materially alter the conditions to obtain relief from the prohibited transaction resulting from conflicted fiduciary advice,” he said.

He added that the exemption was similar to the June proposal by adding “the preamble continues the DOL’s interpretation that advisors who recommend rollovers can be fiduciaries if they have an ongoing financial advice relationship with the participant, even for personal assets, or if the advisor intends to provide ongoing advice to the rollover IRA.”

Reish noted that the DOL said that it will not enforce the new definition of fiduciary advice retroactively and will grant limited relief for the next year if the advice is in the participant’s best interest, and the advisor’s compensation is not more than reasonable.

“The exemption will apply to conflicted recommendations made to plans, participants, and IRA owners,” he said. “A recommendation is ‘conflicted’ if it increases the compensation of the advisor and his or her supervisory entity (e.g. broker-dealer or RIA).”

Finally, Reish said, the rule is “Economically Significant,” which means that it cannot become effective until 60 days after it is published in the Federal Register. “As a result, the effective date is after Biden’s January 20 inauguration, and the new administration will, as all do, pull it back for further study and possible changes,” he added.

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