DOL FIDUCIARY ADVICE
RULE UPDATE
July 2016
Agenda
 Definition
 Implications
 Considerations
2
Components of the DOL Fiduciary
Advice Rule
 Audience
 Recommendation
 Topics
 Context
 Exclusions and Exceptions
3
Plan Management
The DOL’s Fiduciary Advice Rule Definition
You are a person or a
firm dealing with a
RETIREMENT AUDIENCE:



IRA holders
Plans
Participants
2 AND
You make a
RECOMMENDATION
for a FEE
3 ABOUT
INVESTMENTS

Buy/sell/hold in plan/IRA or
after distribution
INVESTMENT MANAGEMENT
5 BUT NOT
 General marketing
materials
 Investment education
 Plan sponsor internal
activity

Rollover/distribution

Type of account (brokerage, advisory)
6 THEN

Portfolio composition

Investment policy
FIDUCIARY DUTY

Recommendation of another person as
advisor or investment manager
4 THAT IS

Individualized or

Directed to a specific recipient for a
particular decision or

Made with acknowledgement of
fiduciary status
For ERISA plans and
participants, advice
provider has duties of
prudence and loyalty
AND
1 IF
 Some standard sales/
service for plan
fiduciaries
 Advice recipient is a
sophisticated
fiduciary
NO PROHIBITED
TRANSACTIONS
Advice provider cannot
influence its own
compensation
Advice provider influencing its
own compensation needs an
EXEMPTION
4
So What Does It All Mean?
GOOD NEWS FOR SPONSORS

Many “good”
communications are OK

POTENTIAL CHALLENGES

Investment education
remains
Additional disclosures and
acknowledgements for
sponsor

Greater protection for
terminated participants
Additional disclosures for
participants

Roll in “advice” difficult

Clear rules for sponsors


Greater role clarity for
advisors
Recordkeeping contract
amendments needed

Co-fiduciary liability


“Reasonable fee” is shared
(under exemptions)
5
How is T. Rowe Price Responding?
 T. Rowe Price intends to continue to provide the support
participants need to get them saving and on a path toward a
secure retirement.
 Thorough evaluation of the final rule is in-process. While we
may change some of our processes in working with clients,
we’re still working through the specifics.
 We do not anticipate offering fiduciary investment advice to
plan sponsors.
 We will ensure that you are fully informed of changes or
enhancements being implemented as part of the new rule well
in advance.
6
What Should Be Done Before April 10, 2017?
 Review your benefit philosophy concerning terminated participants
 Consider updating your plan design to make plan a
“destination account”
 Know your category for sales activity
 Consider your perspective on investment advice for participants
(new definition)
 Confirm your service providers’ roles with respect to
fiduciary advice
 Amend contracts as necessary
 Confirm role of Human Resources Team
7
PRESENTATION SPEAKER
NOTES
Components of the DOL Fiduciary
Advice Rule
On April 6, 2016, the U.S. Department of Labor (“DOL”) issued a final rule (“Rule”)
that substantially expands the activities and communications that will constitute
“investment advice” when interacting with ERISA plan fiduciaries and participants,
IRA owners, and certain other tax-favored savings vehicles. The Rule reaches
broadly across the financial services industry, focusing on the distribution of
investment products to retirement audiences and is applicable April 10, 2017.
The different components of investment advice…




Audience
Recommendation
Topic
Context
…will be explained in more detail on the next slide, including the exclusions
and exceptions.
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Plan Management
The DOL’s Fiduciary Advice Rule Definition
The Rule provides that if you are dealing with a retirement “audience”, and you make a “recommendation” for
a fee about “advice topics” that is in a certain “advice context” but not covered by “exclusions and
exceptions”, then you have “fiduciary duties” and must not engage in what are referred to as “prohibited
transactions.” Let’s break down each of these components a bit further.
Retirement “audience” includes IRA owners, ERISA plan participants, and ERISA plan fiduciaries.
A “Recommendation” is a communication that, based on its content, context, and presentation, would be
reasonably viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course
of action.
“Advice topics” include (1) recommendations regarding investment (i.e., recommendations to buy, hold, sell, or
exchange investments in retirement plan/IRA OR recommendations as to investment after distribution from
retirement plan/IRA), and (2) recommendations regarding investment management (including
recommendations regarding whether to distribute or roll over from a plan or IRA, type of account (e.g.,
brokerage vs. advisory), portfolio composition, investment policy, and selection of another advice provider or
investment manager).
“Advice contexts” subject to the Rule include communications that are (1) individualized, (2) directed to a specific
recipient in connection with a particular decision, or (3) made with acknowledgement of fiduciary status.
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Plan Management
The DOL’s Fiduciary Advice Rule Definition
Because of the sweeping nature of the Rule, the DOL identified “exclusions and exceptions” that do not trigger
fiduciary status which include the following:
Investment Education: Materials that factually describe products, plan features, or provide general financial
information are educational. Certain asset allocation models and interactive investment tools are also
considered investment education.
Plan Sponsor Internal Activity: Employees who provide investment advice to their employer and plan fiduciaries
(including fiduciary committees) are not fiduciaries. In addition, casual conversations between employees is not
fiduciary advice.
Standard Sales/Service for Plan Fiduciaries: In connection with offering a platform of investment alternatives,
service providers (e.g., recordkeepers) can provide selection and monitoring assistance, including identification
of investment alternatives (1) that meet objective criteria specified by the plan fiduciary, or (2) in response to an
RFI, RFP or similar request.
Advice Recipient is a Sophisticated Fiduciary: There are certain entities the DOL views as more sophisticated,
including plan fiduciaries that hold or control plan and non-plan assets of at least $50 million. If you fall into this
category, under certain circumstances service providers can provide you with recommendations without
triggering fiduciary status.
If all of the elements of investment advice are satisfied and there is no applicable exclusion or exception, then the
advice provider is subject to a fiduciary standard of care in dealings with ERISA plans and participants, which includes
“fiduciary duties” of prudence and loyalty. Also, the advice provider is subject to “prohibited transaction” rules, in which
case, the advice provider is prohibited from influencing its own compensation unless an “exemption” applies.
11
So What Does It All Mean?
Good News
 Many “good” conversations (participation, contribution level) are not affected
 Investment education topics generally protected for plan participants (and topics of
education increased)
 Increased protections for terminated participants (to protect from poaching by
unscrupulous brokers)
 Clear rules for internal sponsor conversations
 Likely greater role clarity for advisers and consultants used by plans
 Advice provider that needs to use an exemption will share “reasonable fee” burden
Potential Challenges
 We may need to provide you additional disclosures and seek additional acknowledgements
 If advice is provided to participants, they may need to receive more disclosure (possibly
much more)
 “Roll in” conversations may be difficult (need to know details regarding participant’s
circumstances, and information about old plan difficult to obtain)
 Contract amendments may be required
 Increased potential liability to the extent that help offered as “guidance” today becomes
“advice” in the future
12
What Should Be Done Before April 10, 2017?
Below is a list of items for plan sponsors to consider reviewing in advance of the rule’s applicability date.
Review benefits philosophy concerning terminated participants. In general, the DOL has taken the position in
the Fiduciary Advice rule that plans are, more often than not, superior places in which to accumulate
retirement savings. In light of this, plan sponsors will need to decide how they want their plan to function: Do
they want to encourage participants to consider keeping their savings in the employer sponsored plan or
would they just as soon see terminated employees roll their savings to a new employer’s plan or IRA? A plan
sponsor’s assessment of its benefits philosophy for terminated participants will help inform its perspectives
relating to plan design, participant investment advice, and expectations of service providers.
Consider plan design changes to make plan a destination account. Plan sponsors who view their plan as a
destination account, where active employees can choose to consolidate their savings and (once retired) take
lifetime distributions from the plan, should consider plan design changes to enhance their plan’s services and
features. For example, many plans do not permit partial withdrawals, effectively encouraging participants to
roll out of the plan and into other accounts that permit flexibility with respect to retirement income.
Know category for sales activity. Advice does not give rise to fiduciary status if provided to independent fiduciaries
with investment expertise. In this regard, plan sponsors should know if they fall into the so-called “sophisticated
fiduciary” category— defined as fiduciaries who hold or manage at least $50 million in plan and non-plan assets—
which would allow service providers to provide investment advice without triggering fiduciary status.
13
What Should Be Done Before April 10, 2017?
Consider perspectives on investment advice for participants. Do plan sponsors want to provide participants with
access to investment advice? In considering whether to provide access to advice, do plan sponsors want to
differentiate between active participants and terminated participants who may be considering distribution options?
Confirm service providers’ roles with respect to fiduciary advice. Plan sponsors will want to clearly identify the roles
and responsibilities of their service providers in providing education and/or investment advice to participants.
Amend contracts as necessary. Service contracts may need to reflect whether or not fiduciary investment
advice to participants is a “service” provided to the plan and the extent of investment advice services.
Confirm role of human resources and benefits teams. Employees who provide investment advice to their
employer and plan fiduciaries (including fiduciary committees) are not considered ERISA fiduciaries so long as
they receive no compensation above and beyond their normal salary for such advice. Similarly, employees
who provide investment advice to other employees are not considered ERISA fiduciaries so long as they are
neither licensed nor paid for such advice. Employers sponsoring a retirement plan should confirm the roles of
their teams, especially those who may speak with terminating or retirement employees, to help ensure the
exclusion is applicable.
14
THANK YOU
CU9KEI63L
2016-AX-20129