After years of revising regulations and even more years of legal battles, the Department of Labor’s (DOL) 2016 ERISA fiduciary regulations (the regulations) essentially end up right where they started. That is because the U.S. Court of Appeals for the 5th Circuit issued its mandate officially vacating in toto the regulations, including the Best Interest Contract or “BIC” Exemption, and the DOL’s other related prohibited transaction exemptions. Because the deadline to appeal the decision lapsed on June 13, 2018, the legal battle is finally over. Yet, ERISA plan sponsors still have plenty of reasons to monitor their relationships with their service providers and make sure they are complying with their fiduciary duties under the previous (and once again current) regulations.
In recent years, many financial institutions revised the types of products and services they offered to plan sponsors as well as their service provider agreements. After the 5th Circuit’s decision, financial institutions may revise their arrangements even more. Employees who act in a fiduciary capacity at a plan sponsor (perhaps because they are on an investment or benefits committee that selects investment options and providers) have a duty to monitor these arrangements, understand the types of services being provided and how the financial institutions are being compensated, and determine whether or not these arrangements are reasonable.
Further, the regulations encouraged both state regulators and plaintiff attorneys to pay more attention to fees that financial institutions charge for their products and services. The Securities and Exchange Commission also has proposed regulations for retirement advisors, and we expect these rules to be modified after consultation with the DOL. In other words, there are plenty of parties out there who are paying attention to fiduciary issues. Plan sponsors and fiduciaries would be wise to do the same.