"The Pension Specialists" Blog

EBSA to Re-Propose Rule on Definition of a Fiduciary for IRAs and Pension Plans

On September 17, 2011, the Employee Benefits Security Administration (EBSA) of the Department of Labor announced it will re-propose its rule on the definition of a fiduciary. The new proposed rule is expected to be released in early 2012.

On October 22, 2010, the EBSA had published a proposed rule revising a 1975 regulation defining when a person is a “fiduciary” with respect to an IRA or pension plan by reason of giving investment advice for a fee. The 1975 regulation provided for a five-part test to determine if a person was a fiduciary. Under this rule, a person is a fiduciary only if he or she:

1. makes recommendations on investing in, purchasing or selling securities or other property, or gives advice as to their value;
2. on a regular basis;
3. pursuant to a mutual understanding that the advice;
4. will serve as a primary basis for investment decisions; and
5. will be individualized to the particular needs of the IRA or plan.

A person who did not meet all five conditions was and is not a fiduciary. The current EBSA believes there are situations where a person should be a fiduciary even though they are not one under existing law. So a new rule was proposed with the goal to make many more individuals fiduciaries.

On July 26, 2011, Phylis C. Borzi, assistant secretary of labor, EBSA, testified before the House Committee on Education and the Workforce, Subcommittee on Health, Employment, Labor, and Pensions. She testified as to the goals and need for a new definition of fiduciary. There was substantial negative feedback. Even Rep. Barney Frank, D-Mass., the ranking member of the House Financial Services Committee, wrote the DOL and suggested the withdrawal of the proposed rule and the issuance of a new proposed rule to be coordinated with similar actions being taken by the SEC and the CFTC.