Category Archives: Investments

Sometimes the thing is not what you want it to be but it is what it is.  Two months ago, the Dept. of Labor Employee Benefits Security Administration (DOL EBSA) held hearings on the new proposed regulations on the Definition of the Term “Fiduciary”.   

The hearings started on March 1, 2011, with a reminder that “ERISA provides a simple statutory test for determining who is a fudicary by reason of providing investment advice.  Under this test, a person is a fiduciary if he or she renders advice for a fee or other compensation, direct or indirect, with respect to any monies or any other property of the plan.”  This test is from ERISA section 3(21)(A), which the IRS mirrored in Internal Revenue Code section 4975(e)(3). 

ERISA section 3(21)(A) states

“a person is a fiduciary with respect to a plan to the extent:

1.  he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets,

2.  he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility or discretionary responsibility in the administration of such plan.  Such person includes any person designated under section 405(c)(1)(B), 29 USC 1105(c)(1)(B) (named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan).”

Several months after ERISA was signed into law in 1974, the DOL issued regulations interpreting ERISA section 3(21)(A) - Labor Reg. 2510.3-21(c).      It provided a 5-part test to determine when a person is to be treated as a fiduciary because they render investment advice.  That 5-pat test, as stated in the DOL”s 2010 proposed fiduciary reg, is:

“For advice to constitute “investment advice”, an adviser who does not have discretionary authority or control with respect to the purchase or sale of securities or other property for the plan must -

1.  Render advice as to the value of securities or other property, or make recommendations as to the advisability of investing in, purchasing or selling securities or other property

2.  On a regular basis

3.  Pursuant to a mutual agreement, arrangement or understanding, with the plan or a plan fiduciary, that

4.  The advice will serve as a primary basis for investment decisions with respect to plan assets, and that

 5.  The advice will be individualized based on the particular needs of the plan.

This was the standard for 35 years.  It was not perfect but everyone knew what the rules were when it came to determining who was a fiduciay for plan purposes. 

In 2010, the DOL, in response to the recent Executive Order which directed all agencies to review all regulatory and other guidance to see whether the regs are still useful and valid, issued the new proposed regulation on the Definition of the Term “Fiduciary.  

If the size of the response to the change is any indication of the impact of the change, then these regulations are expected to have a large impact.  In response to this proposed regulation redefining who is a fiduciary for plan purposes, the DOL states that it received 200 comment letters and 38 requests to testify at the hearings.

We’ve included a redline edition comparing the current definition of the term fiduciary from Labor Reg. 2510.3-21(c) to the new Oct. 2010 proposed definition the term fiduciary in our library.