DOL Issues Agenda for Hearing on Proposed Regulation Changing the Definition of “Fiduciary”

Workers and retirees all over Chicago and the rest of Illinois may soon receive more protections from the Department of Labor. The Department of Labor has issued an agenda for the upcoming hearings on the proposed new definition of “fiduciary” for purposes of ERISA. In October 2010, the DOL issued a proposed regulation modifying the definition of “fiduciary” for purposes of ERISA. 75 Fed. Reg. 65,263 (Oct. 22, 2010).

Among other things, the regulation would expand the definition of fiduciary to include investment advisors and valuation experts it previously did not define as fiduciaries. Under ERISA, a person is a fiduciary with respect to a plan to the extent that “he renders investment advice for a fee or other compensation, direct or indirect, with respect to moneys or other property of such plan, or has any authority or responsibility to do so . . . .” ERISA § 3(21)(A)(ii). This is by no means the only way one can become a fiduciary of a plan, though.

The DOL promulgated regulations in 1978 refining what it meant to “render investment advice for a fee.” 29 C.F.R. § 2510.3-21. The DOL noted that currently, in order to render “investment advice for a fee”, an adviser who does not have discretionary authority or control with respect to buying and selling plan assets must satisfy a 5-part test, in that he 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. 29 C.F.R. § 2510.3-21(c).

Under the proposed regulation, many investment advisers currently evading fiduciary status would fall under the fiduciary umbrella. The proposed regulation requires only that a registered investment adviser who does not have discretionary authority or control with respect to buying and selling plan assets: (1) Provides advice or recommendations regarding the value, buying, selling, holding, or management of securities or other property (2) to a plan, plan fiduciary, participant, or beneficiary. Should this proposed regulation become enacted, we can expect to see more investment advisers named as defendants in breach of fiduciary duty ERISA lawsuits. If you would like questions answered regarding who is a fiduciary of the plan in which you are a participant or beneficiary, speak to somebody knowledgeable about ERISA.