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1 1 (November 12, 2015)

handle is hein.crs/govcczz0001 and id is 1 raw text is: FF.ri E~$~ & November 12, 2015 DOL's 2015 Proposed Fiduciary Rule on Investment Advice On April 20, 2015, the Department of Labor (DOL) proposed redefining the term investment advice within pension and retirement plans. Currently, under the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406), a person who provides investment advice has a fiduciary obligation to provide the advice in the sole interest of plan participants. Thus, redefining the term investment advice could affect who is subject to this fiduciary standard. More detailed information about the proposal is available in CRS Report R44207, Department of Labor's 2015 Proposed Fiduciary Rule: Background and Issues. Current' RE4iudkton Regulations issued in 1975 define investment advice using a five-part test. To be held to ERISA's fiduciary standard with respect to his or her advice, an individual must (1) make recommendations on investing in, purchasing, or selling securities or other property, or give advice as to the value (2) on a regular basis (3) pursuant to a mutual understanding that the advice (4) will serve as a primary basis for investment decisions, and (5) will be individualized to the particular needs of the plan. DOL proposed broadening the term's definition to capture activities that currently occur within pension and retirement plans, but do not meet the existing definition of investment advice. The proposed rule would replace the current five- part test with a more inclusive definition. The following are the types of activities that would constitute investment advice under the proposed rule, if they are done for a fee or other compensation: * investment recommendations and recommendations (1) as to the advisability of taking a distribution from a pension plan or Individual Retirement Account (IRA); (2) for the investment of securities or other property that are rolled over from a plan or an IRA; (3) for the management of securities or other property, including rollovers from a plan or IRA; * the appraisal or a fairness opinion of the value of securities or other property if connected with a specific transaction by a plan or IRA; or * a recommendation of a person to provide investment advice for a fee or other compensation. The following activities would not constitute investment advice under the proposal: * recommendations made to a plan fiduciary if the plan has 100 or more participants or at least $100 million in plan assets; * selection and monitoring assistance if an individual is identifying alternatives that meet objective criteria specified by the plan fiduciary or is providing objective financial data and benchmarks; * marketing by platform providers who market to a plan without regard to the individual needs of the plan or the plan's participants; * appraisals for Employee Stock Ownership Plans (ESOPs), though DOL might issue additional regulations for appraisals of ESOPs; and * provision of investment education, such as information about the plan, general financial, investment, and retirement information. The proposal provides that certain individuals would not be subject to the fiduciary standard. These include swaps dealers; employees of the plan sponsor or employee organization provided they do not receive compensation for the advice beyond their normal compensation; and individuals who engage in executing securities transactions. B Se tk -bre.,lt Con tract. 'r-,ec In addition to requiring plan fiduciaries to adhere to certain standards of conduct, ERISA prohibits fiduciaries from engaging in transactions deemed likely to injure a pension plan. A number of prohibited transaction exemptions (PTEs) have been issued, both in statute and via DOL- issued exemptions, which allow individuals or classes of individuals to engage in specified transactions that would otherwise be prohibited under ERISA. Accompanying the 2015 proposed rule, DOL has proposed or modified a number of PTEs. DOL has proposed a best interest contract (BIC) exemption so that certain broker- dealers and others who act as plan fiduciaries would be able to continue to receive compensation that would otherwise be prohibited. For example, absent the exemption, fiduciaries would not be able to receive commissions, load fees, or other fees as a result of their advice. The proposed BIC exemption would require compliance with certain conditions, including that the financial institution must * acknowledge fiduciary status in a contract with the retirement investor. * adhere to impartial conduct standards, which include acting in the best interest of the retirement investor and not accepting more than reasonable compensation. .O 'T gognpo goo g , q 'S a X 11LULANJILiN,

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