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On October 31, 2023, the US Department of Labor (“DOL”) unveiled a new proposed regulation titled “Retirement Security Rule: Definition of an Investment Advice Fiduciary” (the “2023 Proposed Rule”) and proposed amendments to several prohibited transaction exemptions (“2023 Proposed PTE Amendments”). With these proposals, the DOL aims to expand the criteria for determining who would be an “Investment Advice Fiduciary” for purposes of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and force many such “Investment Advice Fiduciaries” to comply with Prohibited Transaction Exemption (“PTE”) 2020-02 for fee and affiliated investment conflicts.

The 2023 Proposed Rule, if finalized, would modify the “Five-Part Test” for determining fiduciary status that has been in effect since 1975. In the preamble to the 2023 Proposed Rule, the DOL stated that the Five-Part Test was no longer suited to address the modern landscape of professional investment advice. In particular, the DOL was concerned that the “regular basis” and “mutual understanding” prongs of the Five-Part Test exclude many circumstances in which a fiduciary of an ERISA plan, plan participant or beneficiary, or IRA owner (each, a “Retirement Investor”) may reasonably assume that they were receiving investment advice based on the Retirement Investor’s best interest.

The 2023 Proposed Rule marks the third attempt since 2010 by the DOL to replace the Five-Part Test. The most recent attempt was an updated regulatory definition of Investment Advice Fiduciary issued on April 8, 2016 (the “2016 Fiduciary Rule”), which was vacated in its entirety by the US Court of Appeals for the Fifth Circuit in 2018. The court’s opinion stated that the 2016 Fiduciary Rule had strayed too far from the common-law definition of the term fiduciary, which turns on the existence of a relationship of “trust and confidence” with the client and does not extend to those who merely sell products to their clients.Continue Reading DOL Releases New Proposed Regulation Regarding Investment Advice Fiduciaries

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On January 21, 2021, the United States District Court for the Northern District of California granted a motion by the Intel Corporation Investment Policy Committee to dismiss all ERISA claims brought against it by two plan participants representing a class of participants. The plaintiffs alleged, among other things, that the Committee acted imprudently by including private equity, hedge funds and commodities in a custom target date investment option in Intel’s 401(k) plan. The case was Anderson v. Intel Corp. Inv. Policy Comm., Case No. 19-CV-04618-LHK.
Continue Reading Court Rejects Plaintiffs’ Claims that Private Equity is Imprudent for 401(k) Plan

The Department of Labor’s recent pronouncement on the permissibility of investing 401(k) and other defined contribution plan assets in private equity has gotten wide-spread attention. Yet the guidance, which was issued in the form of an information letter, does not establish any new fiduciary principles, or provide any exemptions under the Employee Retirement Income Security Act of 1974 (“ERISA”). Nevertheless, the guidance is of great significance to the industry and this blog discusses why.
Continue Reading DOL Issues Guidance about Private Equity Investments in 401(k) Plans

As we previously reported in our Legal Update, in April 2016 the U.S. Department of Labor (“DOL”) replaced its 1975 regulation that set the parameters for determining when a person should be treated as a fiduciary under ERISA when providing advice with respect to investment matters (the “Fiduciary Rule”).  The new definition treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a much wider array of relationships than was true under the 1975 regulation. In connection with the publication of the new Fiduciary Rule, the DOL also published two new administrative class exemptions from the prohibited transaction provisions of ERISA and the Internal Revenue Code—the BIC Exemption and the Principal Transactions Exemption—as well as amendments to PTE 84-24, commonly relied upon for the sale of insurance contracts to ERISA plans.  As discussed in the Legal Update, just as plan fiduciaries geared up for these major changes, the DOL began to back peddle as a result of the change in administration and new leadership at the DOL. So where are we now?
Continue Reading DOL Fiduciary Rule Update – Where Are We Now?

A collective investment trust (“CIT”) is a longstanding vehicle used by banks and trust companies to commingle the assets of qualified retirement trusts for investment.  In recent years, CITs are enjoying a resurgence for defined contribution plans as an alternative to mutual funds in a 401(k) plan line up. The primary reason for the new popularity of CITs is that they often have a lower expense ratio than mutual funds as a result of being free from the extensive regulatory requirements imposed on mutual funds under the securities laws.  But there are many other differences between CITs and mutual funds that plan fiduciaries should understand when adding an investment option structured as a CIT to their 401(k) plan line up.  This blog provides a number of examples of issues that plan fiduciaries who are not familiar with CITs could miss.
Continue Reading Collective Investment Trusts – What DC Plan Fiduciaries Should Know