Proposed ERISA Changes Would Affect Definition of Fiduciary

Washington, D.C.Proposed changes to ERISA (Employee Retirement Income Security Act) laws could strengthen the requirements of people who act as fiduciaries for an ERISA plan. The proposed ERISA benefits changes would increase the responsibility given to people who give advice about how an employee stock plan or employee savings plan is run, even if that advice is given infrequently.

The proposed rule change would broaden the requirement for being considered a fiduciary under ERISA law. Currently, a fiduciary is someone who provides advice about a plan's investment decisions on a regular basis. This excludes people who give investment advice about a plan occasionally. Some broker-dealers avoided being called fiduciaries by saying that their advice was not the main basis for decisions made about a plan.

Under the proposed changes, which were released by the Department of Labor on October 21, 2010, a fiduciary would be any broker-dealer who provides investment advice to an ERISA plan and receives a fee for giving that advice. In other words, a person is a fiduciary if he gives advice and receives a fee for that advice, even if the advice is only given from time to time or just on a one-time basis.

There would be some exemptions to that rule. For example, if the broker-dealer tells another fiduciary for the plan that he [the broker-dealer] is acting on behalf of someone else to sell securities to the plan, he would not be considered a fiduciary of the ERISA plan.

What does this means for plan participants? There are now more people who could be considered fiduciaries for an employer-sponsored plan. If there are problems with the plan, and if those fiduciaries have breached their fiduciary duty, they could be held liable for any losses incurred by the plan and its participants.

One of the reasons for the proposed change is that people who advise about a plan's investments or assets could be operating in a conflict of interest, even if they only give advice the one time. One-time advice, if it is a conflict of interest, can seriously harm plan participants.

Fiduciaries have a responsibility to act in the best interests of plan participants and make investment decisions that are free of a conflict of interest. Breaches of fiduciary duty include failure to diversify a plan's assets, investing a plan's assets in company stock when it is not prudent to do so and failing to provide material information about an investment to plan participants.