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What TPA Business Owners Need to Know - Key Features of the Final Investment Advice Regulation

Posted By Marcia S. Wagner, Esq., The Wagner Law Group, Tuesday, April 12, 2016

Nearly a year after it was proposed, the DOL has finalized its regulation redefining and broadening the meaning of fiduciary investment advice, as well as new and revised class exemptions from prohibited transactions potentially affecting the expanded class of fiduciaries.  As predicted, the effective date of the new rule is 60 days after its formal publication on April 10, 2016.  Although this means that the fiduciary regulation will take effect on June 9, 2016, its applicability will be delayed until April 10, 2017 which is somewhat longer than the eight months lead time the DOL originally signaled.  Moreover, the need to comply with many of the conditions necessary to qualify for various exemptions under the new prohibited transaction guidance will not be required until January 1, 2018.


Expanded Fiduciary Definition.  As under the proposed fiduciary rule, the final regulation significantly enlarges the definition of fiduciary advice.  As would be expected, the finalized definition covers recommendations relating to the holding, acquisition and sale of securities or other property, but as under the proposed revision, it will also cover recommendations to take rollovers from a plan, as well as investment recommendations for rollover assets.  The final regulation drops the proposal’s inclusion of financial valuations, appraisals and fairness opinions as covered fiduciary recommendations but signals that the DOL is developing an amendment that will cover ESOP appraisals. 


The final regulation also follows the proposed fiduciary advice definition by covering recommendations relating to the investment management of plan or IRA assets, including rollover assets, so that recommending an investment manager can have fiduciary implications.  The final rule clarifies that investment management recommendations can also include communications relating to investment policies or strategies, portfolio composition and the selection of investment account arrangements, such as the choice of a brokerage or advisory account.


Non-fiduciary Adviser Referrals.  An issue that particularly concerned NIPA membership was whether certain incidental communications could come within the definition of fiduciary investment advice. Some thought a literal reading of the proposal could result in a third party administrator (“TPA”) becoming an inadvertent fiduciary if it responded to a question from a retirement plan client about available investment advisers, even though the TPA’s fee was not related to or contingent on the response.  As required by statute, fiduciary status only applies to a service provider if it receives compensation in connection with its referral or recommendation. 


The finalized fiduciary regulation attempts to deal with incidental advice rendered with respect to investment advisers by redefining the requisite fee or other compensation either as an amount explicitly received for particular advice or a fee that would not have been paid but for the advice or if eligibility for or the amount of the fee is based in whole or in part on the advice.  Accordingly, if a TPA can show that a referral or recommendation with respect to an investment adviser was purely an extra for which no fee was received, the recommendation should be non-fiduciary in nature.  On the other hand, if the recommendation is deemed to be a part of its regular services, for which it earns a fee, the TPA could potentially be viewed as a fiduciary adviser.


Additional Conditions for Fiduciary Advice.  Under the old definition of fiduciary advice, there needed to be a mutual understanding between the parties that the advice would serve as a primary basis for plan investment decisions. The proposal eliminated these requirements and under the final version of the definition, there only needs to be an understanding that a recommendation is based on the particular investment needs of the retirement investor receiving it or directed to a specific recipient regarding the advisability of a particular investment or management decision with respect to plan or IRA assets.


Under the final rule, the threshold question in determining if fiduciary advice has been rendered is whether a “recommendation” has occurred.  Of particular relevance to recordkeeping platforms (“recordkeepers”) that offer a platform of investment vehicles to their 401(k) plan clients is the final regulation’s statement that, “[p]roviding a selective list of securities to a particular advice recipient as appropriate for that investor would be a recommendation as to the advisability of acquiring securities even if no recommendation is made with respect to any one security.”  This reflects the DOL’s longstanding view, as reflected in the preamble to the final rule that “specific recommendations as to underlying investments on a platform would continue, of course, to be fiduciary investment advice.”


Platform Provider Exception.  Fortunately, the final regulation retains the proposed rule’s concept of a platform provider carve-out from the fiduciary definition enabling recordkeepers to maintain their non-fiduciary status on the condition the recordkeeper provides written disclosure that in offering an investment platform it is not purporting to provide impartial investment advice or to give advice in a fiduciary capacity.  To qualify under this platform provider rule, which now takes the form of an exception to the activities that the final fiduciary rule treats as fiduciary recommendations, the recordkeeper would also need to market the platform without regard to the individualized needs of the particular plan or its participants.  However, the preamble to the final rule indicates that some level of customization (referred to as “segmentation”) will be allowed so that winnowed bundles of investment options may be offered to different general types of plans differentiated by objective criteria (e.g., small, medium and large plans).  Nevertheless, the preamble warns that if a recordkeeper communicates that a particular platform is “appropriate” for a given plan, the communication will likely constitute a fiduciary recommendation.


Other communications and activities related to providing an investment platform that are considered exempt recommendations under the final rule include identifying investment alternatives meeting objective criteria specified by a plan fiduciary, such as investment funds of a certain size or with expense ratios below a particular threshold.  A provider can also respond to requests for identification of investment alternatives with a particular type of asset or credit quality. These exemptions are conditioned on the platform provider’s written disclosure of any financial interest it may have in the alternative investments and the precise nature of this interest.  In addition, the provider would be permitted to provide on an exempt basis objective financial data for investment alternatives, as well as independent benchmarks. 


To these exempt recommendations, which would have been permitted under the proposed rule, the final regulation adds the ability to respond to an RFP or similar plan solicitation by identifying a limited sample set of investment alternatives based on the size of the employer plan or the current investment alternatives designated under the plan provided the response is in writing and discloses the provider’s financial interest in these investments, if any.


Bundled Investment Services.  The preamble to the final regulation also addresses the status or related services frequently bundled with investment platforms, such as elective managed account programs, qualified default investment alternatives, investment adviser/manager options, and non-affiliated RIA services.  The preamble states the DOL’s belief that “much” of the information a platform provider would convey to plan clients in explaining these would not involve investment recommendations within the meaning of the fiduciary rule, but does not provide practical guidance with respect to identifying the type of information that might have fiduciary implications.  The preamble indicates the final regulation did not make any changes reflecting comments on this matter.


Investment Education Exception.  A modified version of the proposed regulation’s carving out investment education from the definition of fiduciary conduct continues in the final regulation.  Consistent with DOL Interpretive Bulletin 96-1, there are four categories of investment-related guidance that TPAs and other service providers may render to retirement investors without triggering fiduciary status: (i) plan information, (ii) general financial, investment and retirement information, (iii) asset allocation models and (iv) interactive investment materials.  Unlike the interpretive bulletin, the proposed and final regulations cover information delivered to plan sponsors, plan fiduciaries and IRA owners, as well as participants and beneficiaries. 


The proposed rule prohibited educational materials from referring to specific investment alternatives based on the fear that this could be used as a marketing tool.  Reverting to the position taken in the interpretive bulletin, however, the final rule lifts this restriction with respect to plans, but not IRAs, subject to restrictions.  Thus, a plan’s specific investment alternatives can be referred to in asset allocation models if (i) the investment’s inclusion on the investment platform was subject to oversight by a plan fiduciary independent from the person who developed or markets the investment alternative or the model, (ii) the model identifies  all other investments available under the plan having similar risk and return characteristics to the investment referred to in the model and (iii) the model is accompanied by a statement indicating that these other investments have similar characteristics to those included in the model and identifying where information on them can be obtained.  Similar restrictions apply where plan investment alternatives are referred to in interactive investment materials.


Best Interest Contract Exemption.  As a practical necessity, the broad scope of the new fiduciary definition requires exemptive relief to avoid subjecting all plan advisers to undue restrictions on traditional business models and compensation arrangements.  The best interest class (“BIC”) exemption is the primary vehicle for such relief with respect to retail retirement clients.  Under the proposed BIC exemption, this relief was restricted to certain listed investments.


Under the proposed rule, the core requirement for the BIC exemption was a written contract between a fiduciary adviser and a retirement client that needed to be executed before advice could be rendered.  The contract had to provide that the advice would be in the best interest of the retirement investor and consistent with ERISA’s prudent man standard of care.  The agreement also had to provide that the adviser was limited to reasonable compensation and warrant the adviser would make certain disclosures, avoid misleading statements and adopt compliance policies mitigating conflicts of interest.


The final rule relaxes many of the requirements necessary to qualify for the BIC exemption.  For example, it eliminates the list of assets and makes the exemption available to all asset classes.  In addition, the contract requirement will be eliminated for ERISA plans, although advisers wishing to qualify for the exemption must still provide written acknowledgement of their fiduciary status.  Disclosures required under the contract would be simplified and eliminate the need to make certain performance projections.  Special provisions clarify how the BIC exemption applies to advice rendered with respect to proprietary products which other wise might be seen as impeding the best interest of the retirement investor.


Advisers to IRAs whose compensation is a level fee (i.e., a percentage of assets under management) will also be entitled to rely on the BIC exemption without entering a contract.  For advice to IRA owners that would be subject to the contract requirement, the timing of the contract can be synchronized with the paperwork opening the account, although the contract must cover any advice rendered before its execution.  Existing clients can agree to the new contractual provisions by negative consent.  Moreover the final rule reduces the contract requirement to a bilateral agreement between a retirement investor and the advisory firm, thereby eliminating the requirement that personnel actually rendering the advice be parties to the contract.


NIPA members should monitor further developments with respect to the final fiduciary rule, particularly as to dates when its various provisions become applicable.

















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NIPA Advocacy: Small Business Employee Benefits Roundtable

Posted By Megan Turckes, Wednesday, April 6, 2016
Updated: Wednesday, April 6, 2016

On March 24, 2016, the Small Business Employee Benefits Roundtable met in Washington, DC. The meeting was scheduled to discuss the IRS Proposed Rulemaking entitled “Nondiscrimination Relief for Closed Defined Benefit Pension Plans and Additional Changes to the Retirement Plan Nondiscrimination Requirements.”


On January 29, 2016, the Internal Revenue Service (IRS) issued proposed rules that would modify the nondiscrimination requirements for retirement plans that provide additional benefits to a grandfathered group of employees following certain changes in the coverage of a defined benefit plan or a defined benefit plan formula. The Internal Revenue Code provides that a retirement plan is a qualified plan only if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees. If the average benefit percentage nondiscrimination test is used, the proposed rules would limit the availability of the “each participant in his or her own group” method of determining profit sharing allocations. Consequently, small business stakeholders are concerned that the proposed rules would make it more difficult to satisfy nondiscrimination testing for

 general-tested plans.


The purpose of the meeting was for the small business community to share feedback to the Office of Advocacy in setting its priorities related to this issue. NIPA Board of Director, Robert Chin, Abacus Benefit Consultants, Inc., was in attendance in-person to represent the NIPA community and the retirement plan industry. NIPA was the only organization in attendance who presented a formal document outlining the impact on small business owners of the suggested legislation. Chin presented the following letter to the group in attendance that included J. Mark Iwry, Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy, U.S. Treasury Department, among others.


The Letter from NIPA:




NIPA Board of Directors


Board President

Patrick M. Shelton, GBA
Benefit Plans Plus LLC


Michelle Marsh, QKA

Retirement Plan Concepts & Services, Inc.

Chief Financial Officer

Joseph Burt, APR, ERPA, QKA, QPA
Pension Plan Specialists


Immediate Past President

Ann Slotwinski, APR

John Hancock Financial Services


Executive Committee Member-at-Large
Darren Holsey, APA, ERPA, QKA, QPA

Premier Retirement Services, Inc.



Robert Chin

Abacus Benefit Consultants, Inc.


Ralph DelSesto, APR



James Eberhardt, APA

Pension Services Corporation


Trina Gross, APA, QKA

Acuff & Associates, Inc.


Matthew King

The Standard


Emily Lichtenwalner, APA, AIF

T R Paul Inc.


Michael B. Stuber, ERPA, QPA

Primark Benefits

    March 22, 2016 


We all know and agree small business owners represent at least 85% of all the businesses in the United States. In order to attract talented, experienced employees and loyal employees, they are faced with many challenges;

  • Continuation / Competition of their business enterprise
  • Competitive Employee Wages
  • Employee Benefits – Offering Health Insurance, Vacation and Retirement Plan  
  • Flexible Working Hours
  • Less governmental intervention

We know the government is encouraging the private sector to offer a “meaningful” retirement plan but, at what cost or detriment to the small business owner. Since 2008 we have seen the decline in the stock market, the housing bubble burst, unemployment increase, LESS talented experienced employees available and the shrinkage of personal savings especially retirement plan accounts. During the last 3 years we have seen a slight increase in the formation and improved employer contribution patterns to retirement plans. We do not want this to decline. The new “proposed” Non-Discrimination rule would only add to an already complex set of Regulations that would slow or reduce the implementation of private sector retirement plans.  


Speaking for the small business owner we ask, that you not impose the new Non-discrimination rule. As a third party administrator, let us continue the good work to encourage employers to keep their retirement plans, start new plans and help supplement the retirees who will also collect Social Security.  


Since we are in the field every day, help our industry promote the advantages of continuing the promotion of small business retirement plans, establish a procedure for TPA’s to efficiently administer retirement plans and pass legislation toward that end. Legislate additional incentives for implementing a retirement plan, promote the continuation not elimination of private sector qualified plans. It is vital to the private sector that small business retirement plans remain an optimum solution for all employees to retire with dignity. "Collectively, the Federal Government, third party administrators, investment companies should develop a national campaign on the saving for retirement. Employers and employees will view this as a positive cause to move the undecided to save for retirement."




Laura J. Rudzinski, Executive Director

NIPA Headquarters

330 North Wabash Ave., Suite 2000, Chicago, IL 60611-7621 USA | | (800) 999-NIPA (6472)

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IRS Issues a Change for 2015 5500 Series Government Forms

Posted By Lauren Checea, Wednesday, February 17, 2016
Updated: Wednesday, February 17, 2016

By: Kristina Kananen, APA, QPA, QKA, DATAIR Employee Benefit Systems, Inc.


In a stunning reversal, the IRS is issuing new instructions for the 2015 5500 Series and the 2015 5500-SF as they pertain to the new IRS Compliance questions. All instructions for these items in the new version have been changed to read:


The IRS has decided not to require plan sponsors to complete this question for the 2015 plan year and plan sponsors should skip this question when completing the form.


This change is in effect for the following new questions:


Preparer Information on Form 5500 and Form 5500-SF

Schedules H and I

Lines 4o, Unrelated Business Taxable Income

Lines 4p, In-Service Distributions

Part V, Lines 6a-d, Trust Information

            Schedule R

                        Part VII, Lines 20a-c, 21a-b, 22a-c, 23

            Form 5500-SF

                        Line 10j, Unrelated Business Taxable Income

                        Lines 14a thru 14d, Trust Information

                        Part IX, Lines 15a-c, 16a and b, 17a-d, 18, 19 and 20


If you have already filed 2015 filings in which you completed these questions, those filings will stand and the information you provided will be made public and provided to the IRS. Future filings that you prepare for 2015 plan years, should be prepared with the “should skip” instructions in mind.


It is believed that after many comments from the qualified plan industry regarding the first set of 2015 5500 Series instructions and the new IRS questions, the IRS is revamping their questions and the instructions. Those changes and clarifications will be probably be seen in the 2016 5500 Series. 

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