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Message from the Consultants
The Department of Labor (DOL) recently issued a final rule on the definition of fiduciary (see page 2 and 3). Although not directly applicable to public sector plan sponsors, these will have an ultimate impact on state and local government employers. DOL rules and regulations are generally considered best practice guidance. In addition, many state governments, such as California, adopt similar language regarding fiduciary standards in state laws. Although the future of this new rule continues to be in question, at this point it is scheduled to take effect spring 2017. The new fiduciary definition provides both good and bad news for plan sponsors. The “good news” is that there likely will be expanded fiduciary services available to plan sponsors. Also, it will result in additional information being required to be provided by advisors to sponsors and participants to help them make educated decisions about the plan and its investments. In regard to “bad news,” this rule will result in some new complications for plan sponsors. It will be necessary to reexamine relationships with all of the plan's service providers. Identifying which providers have a fiduciary role with the plan is critical. If not previously considered a fiduciary, it may be necessary to revise arrangements, contracts, disclosures, and/or fee arrangements to comply with the new rules. Your SST consultant is available to help you understand the new rules, as well as to identify how it impacts your plan and your provider arrangements.
Sincerely, Bill Tugaw, Paul Hackleman & Mindy Harris
SST Benefits Consulting
RFI versus RFP
Changes to the definition of a fiduciary as a result of the
new DOL rule may require public sector plan sponsors to
re-examine their provider relationships. This ultimately
may result in the need to use a request for information or
request for proposal to explore new or amended service
provider arrangements.
Most state and local government employers have specific
procurement requirements that must be followed for
contracting purposes. This typically involves a request for
information (RFI) or request for proposal (RFP).
An RFI is used when you have a general idea of what you
want or need but may not know exactly what is available
from service providers or the industry. This is a process
that is used to collect information about products and/or
capabilities without a commitment to or from a vendor.
Although contracts may result from an RFI, it generally is
followed by an RFP.
The advantage of an RFI is that this is merely an inquiry
about the services or products that a provider can offer.
The disadvantage is that providers may be reluctant to
invest much time in completing an RFI and responses may
only provide basic information.
An RFP is a formal process with strict procurement rules
for content, timeline and vendor responses. The RFP
identifies the specific scope of work or products to be
secured. Comprehensive details must be included about
the plan and its participants so responses can be tailored
to the request.
The advantage of an RFP is responses form the basis of a
contractual relationship. The plan sponsor knows exactly
what can be provided and any associated cost. The
disadvantage is that it is more complicated and takes
considerable time and effort to complete. In addition, if
the RFP is too broad in the scope of services or products
being sought, the submitted proposals may be difficult to
compare and evaluate.
Regardless of the approach used to evaluate or select
services or products, this is a fiduciary function and must
be undertaken with care and diligence. It may be prudent
to seek expert services to conduct this effort.
Newsletter for public sector employers on compliance and Volume XXXVIII – Spring 2016 best practices for today's defined contribution plans
& Views
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Washington Insider
DOL Releases Final Rule: Fiduciary Definition – Investment Advice
Department of Labor (DOL) recently released a final regulation to define a fiduciary of an employee benefit plan under
ERISA. The new rule also applies to the definition of a fiduciary of a plan (including an IRA) under the Internal Revenue
Code (IRC). Although state and local government employers are not subject to ERISA, they are subject to the
requirements of the IRC. Compliance with the new rules is not required to begin until April 2017. Additional information
has been published on-line to help explain the regulation including:
Fact Sheet from the White House identifying key elements of the new rule
DOL Fact Sheet explaining the provisions of the final rule and its implications
DOL Chart illustrating changes that were made in the final rule from the 2015 proposed fiduciary rule
The Employee Benefits Security Administration (EBSA) of the DOL has initiated a Fiduciary Education Campaign to help
plan sponsors understand the new rules and meet their responsibilities to workers and retirees. The campaign, entitled
“Getting It Right – Know Your Fiduciary Responsibilities,” provides webinars as well as fiduciary responsibility seminars to
be held around the country between May and August. Educational materials will also be provided on topics such as
understanding fees and selecting an auditor. This program covers the responsibilities of plan sponsors and other
fiduciaries relating to: 1) Understanding plan terms; 2) Selecting and monitoring service providers; 3) Making timely
contributions; 4) Avoiding prohibited transactions; and 5) Making timely disclosures to workers/beneficiaries and required
reports to the government.
Resolutions Introduced in the House and Senate to Stop DOL Fiduciary Rule
Since the release of the DOL’s final fiduciary definition rule, action has been taken in both the House and Senate to
prevent its implementation. The House Education and the Workforce Committee, chaired by Representative John Kline
(R-MN), approved a resolution (H.J. Res. 88) to block the new rule and protect access to affordable retirement advice for
low- and middle-income families. A Senate resolution (S.J.Res.33) was introduced by Senators Johnny Isakson (R-GA),
Lamar Alexander (R-TN) and Mike Enzi (R-WY) to stop the rule via the Congressional Review Act (CRA). Although subject
to Presidential veto, the CRA allows Congress to attempt to block new regulations by passing a joint resolution of
disapproval in both the House and Senate.
President Obama’s 2017 Budget proposal
Earlier this year, President Obama released his 2017 budget proposal, which included several initiatives impacting
retirement planning and savings including: 1) cap on tax deferred retirement savings where individuals would not be able
to make additional tax deferred contributions to a defined contribution or individual retirement account once their
balances are expected to provide annual benefits of more than $210,000; 2) providing tax credits to small business that
automatically enroll employees in a 401(k) type plan; and 3) requiring employers with existing retirement plans to offer
them to long-term, part-time employees who work 500 hours a year for three years.
2016 EBRI Retirement Confidence Survey
The Employee Benefit Research Institute (EBRI) recently released its 2016 Retirement Confidence Survey. This year’s
survey results showed that the “percentage of workers very confident about having enough money for a comfortable
retirement ... increased from 13 percent in 2013 to 22 percent in 2015, and, in 2016 has leveled off at 21 percent. The
percentage of workers somewhat confident increased from 36 percent in 2015 to 42 percent in 2016, while the
percentage not at all confident decreased from 24 percent in 2015 to 19 percent in 2016… Retiree confidence in having
enough money for a comfortable retirement, which historically tends to exceed worker confidence levels, continued to
increase in 2016 reaching 39 percent who are very confident (up from 18 percent in 2013).”
The “Washington Insider” offers news about recent legislative and
regulatory developments that may be of interest to state and local
government plan sponsors
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Potential Contract Issues
Advisors and service providers may want
to renegotiate contractual arrangements
to address the new fiduciary rules. This
may include:
Changing the scope of investment
advice and/or educational
services provided to the plan
and/or its participants.
Modifying any compensation
arrangements within the
relationship to ensure compliance
with the updated fiduciary rules.
Providing new disclosures that
may be required to address any
applicable fiduciary exceptions.
Plan Sponsors:
What you need to know about the new DOL fiduciary rule
Although public sector employers are not directly impacted by DOL
regulations, they are generally considered best practice guidance. In
regard to the final fiduciary definition rules recently released (see page 2),
governmental employers should be aware of their potential effect on their
Section 457, 403(b) and 401(k) defined contribution plans and how
service providers and advisors may react to the new rules.
It will be important for plan sponsors to evaluate service providers and
determine if any contractual relationships may be impacted by the changes
to the fiduciary definition. This should include identifying if any provider,
advisor or consultant, not previously considered a fiduciary, would be determined to be a fiduciary under
the new rules. Plan sponsors should also carefully examine the following:
Participant communication, education and distribution forms to determine if the current
approach is impacted by the new definition of investment advice.
Workshops and group educational seminars to evaluate if the information provided rises to the
level of investment advice as defined in the new rule.
Investment costs - who gets paid and how – and any additional costs related to education and
advice services.
Potential changes to fiduciary liability regarding selection and monitoring responsibilities for
investment providers and advisers.
Although the final DOL rule may cause some initial confusion
and complications, plan sponsors can (and should) continue to
provide comprehensive investment education to participants.
Education, in general, does not rise to the level of advice. As
defined in the new rule, this includes “communications that a
reasonable person would not view as an investment
recommendation, including general circulation newsletters,
television, radio, and public media talk show commentary,
remarks in widely attended speeches and conferences,
research reports prepared for general circulation, general
marketing materials, and general market data.”
SST Consultants are available to help you understand the
new fiduciary requirements and their applicability to your
plan and service providers. This may also be a good time to
consider additional fiduciary training for committee and board
members to update them on their responsibilities to the plan
and its participants.
Bill Tugaw SST Benefits Consulting 866-443-1557 4364 Town Center Blvd., #315 El Dorado Hills, CA 95762 [email protected]
Paul Hackleman SST Benefits Consulting 650-344-0422 232 Stanley Road Burlingame, CA 94010 [email protected]
Mindy Harris SST Benefits Consulting 360-513-7285 8407 NW 15th Court Vancouver, WA 98665 [email protected]
Mary Willett (retired) Willett Consulting 608-469-2506 422 Game Ridge Trail Oregon, WI 53575
