EBSA Sides with Fiduciaries

The Employee Benefits Security Administration (EBSA) has posted two documents that could help some individuals and companies serving as retirement plan fiduciaries.

EBSA and its parent, the U.S. Labor Department, have been trying to draft a new, broader definition of the term “retirement plan fiduciary,” to replace a narrow definition that has been in use since the 1970s.

The effort is of interest to advisor groups and retirement plan services groups, because an individual or company that has fiduciary responsibility has a legal obligation to put the customer’s interests first.

EBSA has answered a question about the effects of a policy shift required by the Dodd-Frank Wall Street Reform and Consumer Protection Act on “prohibited transaction exemptions,” (PTEs) or Labor Department rulings that free individuals or companies to engage in activities that normally might be prohibited by the Employee Retirement Income Security Act (ERISA) or related regulations.

Section 939A of the Dodd-Frank Act requires federal agencies to reduce official reliance on credit ratings.

EBSA says members of the public have asked it how the need to reduce use of credit ratings will interact with Labor Department PTEs.

“It is the department’s view that individual prohibited transaction exemptions are not federal regulations,” EBSA officials say in the answer to the “frequently asked question” (FAQ). “As a result, the department has concluded that Section 939A of the Dodd-Frank Act does not require their review and modification. Accordingly, notwithstanding the deadline for compliance with Section 939A, individual prohibited

transaction exemptions will remain in force with no modifications. All conditions of such exemptions, including those referring to or relying on credit ratings, will continue to apply.”

Although the PTEs will continue to apply, the Labor Department is considering replacements for and optional alternatives to use of credit ratings in connection with individual PTEs, officials say.