On Oct. 27, the Department of Labor issued its Conflict of Interest Exemption FAQs, 34 questions and answers about the fiduciary advice regulation, the 84-24 exemption (for fixed rate annuities and life insurance policies), and the Best Interest Contract Exemption for any and all types of investments.
While the FAQs included questions covering all of that guidance, the focus was on the BICE.
I’ll focus this article on one of the BICE issues—the streamlined provision for recommendations of distributions and rollovers by “Level Fee Fiduciaries,” sometimes called “BICE-lite.”
In Q&A 14, the DOL posed this question:
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Can an adviser and financial institution rely on the level fee provisions of the BIC Exemption for investment advice to roll over from an existing plan to an IRA if the adviser does not have reliable information about the existing plan’s expenses and features?
In its answer, the DOL said that a Financial Institution (for example, a broker-dealer or RIA firm) could rely “on alternative data sources, such as the most recent Form 5500 or reliable benchmarks on typical fees and expenses for the type and size of plan at issue.”
That sounds helpful, but there are strings attached.
The DOL began its discussion by describing the responsibility of advisers and Financial Institutions (e.g., a broker-dealer or RIA firm) to document why a recommendation would be considered to be in the best interest of a “retirement investor” (that is, a participant). The exemption requires documentation that takes into account the fees and expenses in both the plan and the recommended IRA, and the different levels of services and investments available in the plan and the recommended IRA.
(Note that this is a simplification of the requirements. For example, the analysis must consider all of the alternatives open to the participant, including staying in the plan, rolling the money to the plan of a new employer, taking a taxable distribution, and rolling to an IRA. And, BICE requires that the Financial Institution and advisor engage in a prudent process, which generally requires an investigation of the needs of the investor and the considerations related to that.)
The guidance then goes on to say that the advisor and Financial Institution “must make diligent and prudent efforts to obtain information on the existing plan.” The DOL notes that, in general, that information should be readily available from the 404a-5 participant disclosures (which are sometimes referred to as the Investment Comparative Chart). ERISA-governed qualified retirement plans must provide those disclosures to employees when they are first eligible to participate and annually thereafter. As a result, that information should be readily available to participants and, therefore, to advisors.
In addition to the participant disclosures, that information is generally included in the participant’s page for the plan website and, therefore, available in that form. And, finally, some of that information appears on the quarterly participant statements.