	Overview

On April 8, 2016, the Department of Labor (DOL) issued a final rule (2016 final rule) that expanded the definition of investment advice within employer-sponsored private-sector pension plans and Individual Retirement Accounts (IRAs). Individuals who provide recommendations that meet the definition of investment advice are held to a fiduciary standard , which is a higher standard of conduct than for individuals who provide recommendations that do not meet the definition. On April 7, 2017, DOL delayed two aspects of the rule's applicability date by 60 days, from April 10, 2017, to June 9, 2017: (1) the expanded definition of investment advice and (2) the impartial conduct standard of the best interest contract (BIC) exemption. While these two aspects of the rule are currently in place, other aspects of the exemption, such as requirements to make specific disclosures and warrant policies and procedures and to execute written contracts, are to become applicable on January 1, 2018. Regulations for Pension Plans and IRAs

To protect the interests of pension plan participants and beneficiaries, Congress passed the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406 ). Securities brokers and dealers are not covered by the act if the advice they provide is incidental to the transaction and they do not receive a fee for the advice. Individuals who transact with a pension plan may be required to meet certain standards. For example, an individual providing investment advice is subject to the high fiduciary standard, whereas an individual who is acting on the direction of the plan participant to buy or sell a particular security or mutual fund may have a lower standard of duty. Investment Advice

As noted above in the section under Fiduciary Duty, ERISA Section 3(21)(a) established situations in which a person qualifies as a fiduciary. DOL issued regulations that created a five-part test to determine whether an individual provided investment advice and thus was subject to the fiduciary standard. To have been held to the 1975 fiduciary standard with respect to his or her advice, an individual must have (1) made 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) would serve as a primary basis for investment decisions and (5) would be individualized to the particular needs of the plan regarding such matters as, among other things, investment policies or strategy, overall portfolio composition, or diversification of plan investments. The 2010 proposed rule generated considerable controversy. DOL issued the 2016 final rule on April 8, 2016, with an effective date of June 7, 2016. To allow retirement plans and financial services providers time to adjust to the new rule, the 2016 final rule had an applicability date of April 10, 2017. On February 3, 2017, President Trump issued a memorandum on the fiduciary rule directing DOL to (1) review the rule to determine whether it adversely affects access to retirement information and financial advice, and if it finds that it does so then (2) publish a proposed rule to rescind or revise the rule. On March 2, 2017, DOL proposed a 60-day delay of the rule's applicability date. On March 10, 2017, DOL issued a Temporary Enforcement Policy indicating that DOL would not initiate enforcement actions against financial advisers or institutions that failed to satisfy the conditions of the rule or PTEs in the period between the applicability date and when DOL decides to either delay or not delay the applicability date of the 2016 final rule and PTEs. On April 7, 2017, DOL issued a delay of the 2016 final rule's applicability date while it reviews the effects of the rule pursuant to the presidential memorandum. Best Interest Contract (BIC) Exemption

Under the 1975 rule, broker-dealers generally were not providing investment advice and could receive commissions and other forms of compensation that are prohibited to fiduciaries. Comparison of 1975 Rule and 2016 Final Rule

 Table 1 compares the definition of investment advice under DOL's 1975 regulation and under the 2016 final regulation. Changes from 2015 Proposed Rule to 2016 Final Rule

In response to the 2015 proposed rule, DOL received more than 6,000 public comments and held four days of public hearings. However, purchasing these annuity contracts were generally one-time events that would not have met the requirement for advice to be provided on a regular basis. The report also identified several factors that encouraged them to roll over their 401(k) account balances to IRAs.
Regulations issued in 1975 (called the 1975 rule in this report) defined investment advice using a five-part test. To be held to ERISA's fiduciary standard with respect to his or her advice, an individual had to (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 regarding such matters as, among other things, investment policies or strategy, overall portfolio composition, or diversification of plan investments.
On April 8, 2016, the Department of Labor (DOL) issued a final regulation (called the 2016 final rule in this report) that redefined the term investment advice within pension and retirement plans. Under the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406), a person who provides investment advice has a fiduciary obligation, which means that the person must 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. With the 2016 rule, DOL broadened the term's definition to capture activities that currently occur within pension and retirement plans, but did not meet the 1975 definition of investment advice.
The 2016 final rule replaced the five-part test of the 1975 rule with a more inclusive definition. (Table 1 compares the prior and current definitions.) For example, under the prior regulation, an individual had to provide advice on a regular basis to be a fiduciary, which generally would not have included recommendations on whether to roll over a 401(k) account balance to an Individual Retirement Account (IRA). The expanded definition removed the requirement that advice be given on a regular basis.
Under the prior regulation, securities brokers and dealers who provided services to retirement plans and who were not fiduciaries were not required to act in the sole interests of plan participants. Rather, their recommendations had to meet a suitability standard, which requires that recommendations be suitable for the plan participant, given factors such as an individual's income, risk tolerance, and investment objectives. The suitability standard is a lower standard than a fiduciary standard. Under DOL's 2016 regulation, brokers and dealers are generally considered to be fiduciaries when they provide recommendations to participants in retirement plans.
In addition to broadening the definition of investment advice, the rule provides carve-outs for situations that are not considered to be investment advice. For example, providing generalized investment or retirement education is not considered investment advice under the final rule.
The 2016 final rule is accompanied by new prohibited transaction exemptions (PTEs) and amendments to existing PTEs. These allow fiduciaries to continue to engage in certain practices that would otherwise be prohibited (such as charging commissions for products they recommend or having revenue-sharing agreements with third parties).
DOL first proposed broadening the definition of investment advice in October 2010. The proposed regulation generated much controversy and was withdrawn in September 2011. The revised proposals issued in April 2015 also generated considerable controversy. Following the release of the proposals, DOL received public comments and held three-and-a-half days of public hearings on the proposals. DOL issued the 2016 final rule on April 8, 2016, with an effective date June 7, 2016, and an applicability date of April 10, 2017.
On February 3, 2017, President Trump issued a memorandum on the fiduciary rule that directed DOL to (1) review the rule to determine whether it adversely affects access to retirement information and financial advice, and if it finds that it does so then (2) publish a proposed rule to rescind or revise the rule.
On March 2, 2017, DOL proposed delaying the rule's applicability date by 60 days. On March 10, 2017, DOL issued a Temporary Enforcement Policy indicating it will not initiate enforcement actions against financial advisers or financial institutions that fail to satisfy the conditions of the rule or PTEs in the period between the applicability date and when DOL decides to either delay or not delay the applicability date of the 2016 final rule and PTEs.
On April 7, 2017, DOL issued a 60-day delay of the 2016 final rule's applicability date while it reviews the effects of the rule pursuant to the presidential memorandum of February 3, 2017. DOL delayed the applicability date by 60 days from April 10, 2017, to June 9, 2017, of (1) the expanded definition of investment advice and (2) the Impartial Conduct Standard of the Best Interest Contract (BIC) exemption. While these two aspects of the rule are currently in place, other aspects of the exemption, such as requirements to make specific disclosures and warrant policies and procedures and to execute written contracts are to become applicable on January 1, 2018.