{ "id": "R44207", "type": "CRS Report", "typeId": "REPORTS", "number": "R44207", "active": true, "source": "EveryCRSReport.com, University of North Texas Libraries Government Documents Department", "versions": [ { "source": "EveryCRSReport.com", "id": 451440, "date": "2016-04-01", "retrieved": "2016-10-17T20:11:53.129117", "title": "Department of Labor\u2019s 2015 Proposed Fiduciary Rule: Background and Issues", "summary": "On April 20, 2015, the Department of Labor (DOL) proposed redefining the term investment advice within pension and retirement plans. Under the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406), a person who provides investment advice has a fiduciary obligation, which means that the person must provide the advice in the sole interest of plan participants. Thus, redefining the term investment advice could affect who is subject to this fiduciary standard.\nRegulations issued in 1975 define investment advice using a five-part test. To be held to ERISA\u2019s fiduciary standard with respect to his or her advice, an individual must (1) make recommendations on investing in, purchasing, or selling securities or other property, or give advice as to the 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 plan. DOL proposed broadening the term\u2019s definition to capture activities that currently occur within pension and retirement plans, but do not meet the existing definition of investment advice. \nThe proposed rule would replace the current five-part test with a more inclusive definition. Table 1 in this report compares the current and proposed definitions. For example, under the current regulation, an individual must provide advice on a regular basis to be a fiduciary, which generally would not include recommendations on whether or not to roll over a 401(k) account balance to an Individual Retirement Account (IRA). The expanded definition would remove the requirement that advice be given on a regular basis. \nSecurities brokers and dealers who provide services to retirement plans and who are not fiduciaries under current regulations are not required to act in the sole interests of plan participants. Rather, their recommendations must meet a suitability standard which requires that recommendations be suitable for the plan participant, given factors such as an individual\u2019s income, risk tolerance, and investment objectives. The suitability standard is a lower standard than a fiduciary standard. Under DOL\u2019s proposed regulation, brokers and dealers could be considered fiduciaries when they provide recommendations to participants in retirement plans. \nIn addition to broadening the definition of investment advice, the rule would provide carve-outs for situations that would not be considered investment advice. For example, providing generalized investment or retirement education would not be considered investment advice under the proposed rule. \nThe proposed rule is accompanied by proposed prohibited transaction exemptions (PTEs) and proposed amendments to existing PTEs. These proposals would allow fiduciaries to continue to engage in certain practices that would otherwise be prohibited (such as charging commissions for products that they recommend or having revenue-sharing agreements with third parties).\nDOL first proposed broadening the definition of investment advice in October 2010. The proposed regulation generated much controversy and was withdrawn in September 2011. The revised proposals issued in April 2015 also have generated considerable controversy. Following the release of the proposals, DOL received public comments and held three and a half days of public hearings on the proposals. DOL has not indicated when it expects to issue the final rule. \nIn the 114th Congress, bills have been introduced that would, among other provisions, delay or prohibit the implementation of a final rule or establish a best interest standard for advice in retirement plans.\nH.R. 1090, the Retail Investor Protection Act, would prohibit DOL from issuing a final rule on the definition of investment advice until at least 30 days after the SEC were to issue a rule for the standards of conduct for brokers and dealers. On October 27, 2015, H.R. 1090 passed the House of Representatives. \nH.R. 3020 and S. 1695, the Departments of Labor, Health and Human Services, and Education, and Related Agencies Appropriations Act, 2016, would prohibit DOL from using any funds to finalize, implement, administer, or enforce the proposed fiduciary regulation. \nH.R. 3922, the Retirement Choice Protection Act of 2015, would (1) transfer authority for issuing regulations on IRAs from DOL to the Department of the Treasury and (2) establish a best interest standard for fiduciaries who provide investment advice.\nH.R. 4293, the Affordable Retirement Advice Protection Act, and H.R. 4294, the Strengthening Access to Valuable Education and Retirement Support Act of 2015 (or the SAVERS Act of 2015), would, among other provisions, add a statutory definition of investment advice and a best interest prohibited transaction exemption. In addition, the bills would require Congress to approve of investment advice regulations that have been issued after January 1, 2015. Companion legislation has been introduced in the U.S. Senate. S. 2502, the Affordable Retirement Advice Protection Act, was introduced by Senator Johnny Isakson on February 4, 2016, and S. 2505, the SAVERS Act of 2016, was introduced by Senator Mark Kirk on February 4, 2016.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R44207", "sha1": "a0216cd67d2f8e4b40db06cae83132d07fb03111", "filename": "files/20160401_R44207_a0216cd67d2f8e4b40db06cae83132d07fb03111.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R44207", "sha1": "4b45282a8809e4a8d5d934998460897d30fd55df", "filename": "files/20160401_R44207_4b45282a8809e4a8d5d934998460897d30fd55df.pdf", "images": null } ], "topics": [ { "source": "IBCList", "id": 4869, "name": "Pensions & IRAs" } ] }, { "source": "University of North Texas Libraries Government Documents Department", "sourceLink": "https://digital.library.unt.edu/ark:/67531/metadc811080/", "id": "R44207_2015Oct08", "date": "2015-10-08", "retrieved": "2016-03-19T13:57:26", "title": "Department of Labor\u2019s 2015 Proposed Fiduciary Rule: Background and Issues", "summary": null, "type": "CRS Report", "typeId": "REPORT", "active": false, "formats": [ { "format": "PDF", "filename": "files/20151008_R44207_031f94a5e4633db1fce40ead60be6e7f5084040b.pdf" }, { "format": "HTML", "filename": "files/20151008_R44207_031f94a5e4633db1fce40ead60be6e7f5084040b.html" } ], "topics": [] } ], "topics": [ "Appropriations", "Domestic Social Policy", "Economic Policy" ] }