Insights

DOL Releases Conflict of Interest FAQs


On Aug. 3, 2017, the DOL released a second set of Conflict of Interest FAQs that address the Fiduciary Rule’s (the Rule) transition period. Specifically, Transition Period FAQ Set 2 discusses the Rule’s impact on service providers’ IRC Section 408(b)(2) disclosure responsibilities, recommendations to plan participants to increase contributions and recommendations to plan administrators regarding plan design changes intended to increase plan participation.

As it pertains to 408(b)(2) disclosure, the DOL outlines whether certain service providers who are deemed fiduciaries under the Rule will need to change their 408(b)(2) disclosures. As background, covered service providers must generally provide certain disclosures that identify the services they provide to the plan and the compensation the covered service provider expects to receive. The FAQs’ first question essentially asks whether service providers who become fiduciaries as a result of the Rule will need to update their 408(b)(2) disclosures with their status as a fiduciary.

In answering that question, the DOL recognized a couple different groups of service providers. First, service providers who structure their business so that they do not become fiduciaries under the Rule would not be required to disclose their investment advice fiduciary status under 408(b)(2). Second, service providers who will become fiduciaries under the Rule would not be required to actually use the word ‘fiduciary’ in their 408(b)(2) disclosures as long as they accurately describe their services. For this second group, this transition relief would be allowed until the Best Interest Contract exemption becomes applicable (currently scheduled for Jan. 1, 2018); at that time, service providers would have to disclose their fiduciary status in the 408(b)(2) disclosures.

Finally, the DOL noted that a service provider that is becoming a fiduciary under the Rule will need to update the 408(b)(2) disclosure if it currently states that the service provider is not providing fiduciary services. However, they would not have to affirmatively state that they are a fiduciary; they would just need to take out the errant statement that they are not one. Further, a service provider in this predicament should update their 408(b)(2) disclosure as soon as practicable (even if it takes more than 60 days after the June 9, 2017, effective date of the Rule).

As it pertains to recommendations to participants to increase contributions, the DOL uses the FAQs’ second question to explain that the act of encouraging additional savings or contributions to a plan or IRA is not considered investment advice under the Rule. As long as any such recommendations do not include recommendations on any specific investment products, security, or investment property, they would not fall under the Rule. The DOL then gives four examples of communications that would not be considered investment advice.

As it pertains to recommendations to plan administrators regarding plan design changes intended to increase plan participation, the FAQs’ third question makes it clear that a person making recommendations to a plan administrator on ways to increase the employees’ participation in or contributions to the plan would not be considered investment advice under the Rule. Similarly to the second question, these communications would not be subject to the Rule as long as they do not recommend specific investments.

Although these FAQs will not directly affect employers, they are a sign that the DOL is attempting to clarify exactly which communications will be considered investment advice. Employers can also use them to decipher which employer-to-employee communications could place them at risk of having to comply with the Rule.

Transition Period FAQ Set 2 »