Conflicts of Interest Trigger a New Fiduciary Rule

Tip for April 2016

Conflicts of interest within the U.S. retirement plan community have sparked many lawsuits over the years. Most lawsuits of that type have been filed against investment firms and recordkeepers. The Employee Retirement Income Security Act (“ERISA”) has not heavily penalized retirement plan sponsors for hiring service providers that are involved in the delivery of services that create a bias that is harmful to sponsors’ employees. That era has come to a crashing halt.

Today, April 6th, 2016, the U.S. Department of Labor announced a major addition to ERISA that will radically change segments of the vendor market for investment advice, investment products, and administration services. The “Conflict of Interest” rule will alter many vendors’ service offerings. The rule presents a major challenge for plan sponsors, too.

Tips:

Finance and human resource executives need to spend time evaluating the impact of the new Conflict of Interest rule on their retirement plan management practices.

(1) The vendor community is in turmoil over the new rule

ERISA plan managers should talk with their vendors and ask how their company’s services will be affected by the Conflict of Interest rule.

(2) A vendor’s failure to comply with the rule will put their clients at significant risk

A vendor’s violation of the Conflict of Interest rule will impose a prohibited transaction event on the the ERISA retirement plans that the vendor serves. Determining if your plan’s vendors are compliant with the rule is now an added duty that plan sponsors must execute.

(3) The impact of the Conflict of Interest rule will be different for each ERISA plan

Read next month’s TIPs issue from us for guidance on how your plan’s management practices need to be changed. Ask Roland|Criss now for a preview of what to expect for your plan.

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