	Overview

On April 20, 2015, the Department of Labor (DOL) issued a proposed rule that would expand 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. Individuals who are held to fiduciary standards are required to act solely in the interests of plan participants and beneficiaries. Regulations for Pension Plans and IRAs

To protect the interests of pension plan participants and beneficiaries, Congress enacted Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406 ). These exemptions are referred to as prohibited transaction exemptions (PTEs). Generally, brokers and dealers who receive commissions are not subject to the act. The current rule was promulgated in 1975. 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 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. The proposed rule generated considerable controversy. DOL received 202 public comments on the proposed rule between October 26, 2010, and February 11, 2011. Although DOL has not indicated when it will publish the final rule, it proposed that the final rule would be effective 60 days after it is published in the Federal Register and that the requirements of the rule would generally become applicable 8 months after publication. The following are the types of activities that constitute investment advice under the proposed rule, if they are done for a fee or other compensation:
investment recommendations; recommendations as to the advisability of taking a distribution from a plan or IRA; recommendations for the investment of securities or other property that are rolled over from a plan or an IRA; recommendations 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. Accompanying the 2015 proposed rule that would update the definition of investment advice, 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. Comparison of Current and Proposed Rule

 Table 1 compares the definition of investment advice under DOL's current regulation and under the proposed regulation. Issues

The proposed fiduciary rule has generated much controversy. Such communications could be prohibited under the proposed rule. Legislation in the 114th Congress

The following legislation has been introduced in the 114 th Congress that would prevent or delay implementation of the fiduciary rule. Passed the House of Representatives

H.R. 1090 , the Retail Investor Protection Act, introduced on February 25, 2015, by Representative Ann Wagner, would (1) prohibit DOL from issuing a fiduciary rule until 30 days after the SEC issues a rule for the standards of conduct for brokers and dealers and (2) require the SEC to report to the House Committee on Financial and the Senate Committee on Banking, Housing, and Urban Affairs on, among other items, whether retail investors would be harmed by the rule and whether there are alternatives to the rule that the SEC could pursue. On October 27, 2015, H.R. Companion legislation has been introduced in the U.S. Senate. 4294 , the Strengthening Access to Valuable Education and Retirement Support Act of 2015 (or the SAVERS Act of 2015), introduced by Representative Peter Roskam on December 18, 2015, are nearly identical bills which would define investment advice in U.S. Code and also provide for a best interest PTE. S. 2502 , the Affordable Retirement Advice Protection Act, was introduced by Senator Johnny Isakson on February 4, 2016, and S. 2505 , the SAVERS Act of 2016, was introduced by Senator Mark Kirk on February 4, 2016. 4293 and H.R. Such a recommendation would not be considered investment advice and would not be held to a fiduciary standard. The bills provide for several "carve-outs" in which information or recommendations would not be considered investment advice. Provisions in H.R. 4294 but are not in H.R. 3020 , the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2016, introduced by Representative Tom Cole on July 10, 2015, and S. 1695 , the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2016, introduced by Senator Roy Blunt on June 25, 2015, contain provisions that would prohibit DOL from using any funds to "finalize, implement, administer, or enforce the proposed" fiduciary regulation. H.R. 3922 , the Retirement Choice Protection Act of 2015, introduced by Representative Mike Kelly on November 4, 2015, would (1) transfer authority for issuing regulations on IRAs from DOL to the Department of the Treasury and (2) establish a best interest standard for fiduciaries who provide investment advice.
On April 20, 2015, the Department of Labor (DOL) proposed redefining 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.
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. Table 1 in this report compares the current and proposed definitions. For example, under the current regulation, an individual must provide advice on a regular basis to be a fiduciary, which generally would not include recommendations on whether or not to roll over a 401(k) account balance to an Individual Retirement Account (IRA). The expanded definition would remove the requirement that advice be given on a regular basis.
Securities brokers and dealers who provide services to retirement plans and who are not fiduciaries under current regulations are not required to act in the sole interests of plan participants. Rather, their recommendations must 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 proposed regulation, brokers and dealers could be considered fiduciaries when they provide recommendations to participants in retirement plans.
In addition to broadening the definition of investment advice, the rule would provide carve-outs for situations that would not be considered investment advice. For example, providing generalized investment or retirement education would not be considered investment advice under the proposed rule.
The proposed rule is accompanied by proposed prohibited transaction exemptions (PTEs) and proposed amendments to existing PTEs. These proposals would allow fiduciaries to continue to engage in certain practices that would otherwise be prohibited (such as charging commissions for products that 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 have 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 has not indicated when it expects to issue the final rule.
In the 114th Congress, bills have been introduced that would, among other provisions, delay or prohibit the implementation of a final rule or establish a best interest standard for advice in retirement plans.
H.R. 1090, the Retail Investor Protection Act, would prohibit DOL from issuing a final rule on the definition of investment advice until at least 30 days after the SEC were to issue a rule for the standards of conduct for brokers and dealers. On October 27, 2015, H.R. 1090 passed the House of Representatives.
H.R. 3020 and S. 1695, the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2016, would prohibit DOL from using any funds to finalize, implement, administer, or enforce the proposed fiduciary regulation.
H.R. 3922, the Retirement Choice Protection Act of 2015, would (1) transfer authority for issuing regulations on IRAs from DOL to the Department of the Treasury and (2) establish a best interest standard for fiduciaries who provide investment advice.
H.R. 4293, the Affordable Retirement Advice Protection Act, and H.R. 4294, the Strengthening Access to Valuable Education and Retirement Support Act of 2015 (or the SAVERS Act of 2015), would, among other provisions, add a statutory definition of investment advice and a best interest prohibited transaction exemption. In addition, the bills would require Congress to approve of investment advice regulations that have been issued after January 1, 2015. Companion legislation has been introduced in the U.S. Senate. S. 2502, the Affordable Retirement Advice Protection Act, was introduced by Senator Johnny Isakson on February 4, 2016, and S. 2505, the SAVERS Act of 2016, was introduced by Senator Mark Kirk on February 4, 2016.