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.
“The department welcomes public input on this issue,” officials say.
In other fiduciary definition news, Ivan Strasfeld, director of the Office of Exemption Determinations, has issued guidance about PTEs in Advisory Opinion 2011-08A, which was issued to Melanie Franco Nussdorf of Steptoe & Johnson L.L.P., Washington.
The petitioner asked about PTE 86-126, an exemption lets a plan fiduciary engage in securities transactions for a fee as an agent on behalf of a plan.
“You ask if this exemption is available to a person who is a fiduciary by reason of rendering investment advice to a plan,” Strasfeld writes in the advisory opinion. “Without the exemption, this activity would violate the prohibitions against self-dealing in ERISA and the Internal Revenue Code. As explained below, we conclude that the exemption applies to investment advice fiduciaries.”
Section 3(21)(A) of ERISA provides that anyone who “renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so” is a plan fiduciary, Strasfeld says.
PTE 86-128 provides that a ban on a fiduciary charging to engage in securities transactions on behalf of a plan shall not apply if the transactions are not excessive, the fiduciary is acting as an agent both for the plan and another party involved in the transaction, and the fiduciary is getting a reasonable level of compensation.
The Labor Department believes PTE 86-128 can apply to any plan fiduciary, including a person who is a fiduciary solely by reason of rendering investment advice, Strasfeld says.
The PTE specifically excludes plan administrators and plan sponsors from the scope of the relief, but it says nothing about investment advisors, Strasfeld says.