Compliance

DOL Responds to Fiduciary Rule Lawsuit

By Rebecca Moore editors@strategic-i.com | July 19, 2016
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The DOL cited the conference report accompanying ERISA, which says, “The substitute defines ‘fiduciary’ as any person who exercises any discretionary authority or control respecting management of a plan, exercises any authority or control respecting the management or disposition of its assets or has any discretionary authority or responsibility in the administration of the plan.... The term ‘fiduciary’ also includes any person who renders investment advice for a fee and includes persons to whom discretionary’ duties have been delegated by named fiduciaries.”

NAFA submits that the second prong of the fiduciary definition covers only fiduciaries “who participate in [the] ongoing management of a plan or its assets.” According to the court document, in support of its position, NAFA relies heavily on the five-part test in DOL’s previous regulation, arguing that test “precis[ely] … implement[ed] congressional intent,” by requiring, among other things, that investment advice be rendered “on a regular basis.” But, the DOL says NAFA confuses an interpretation that the statute permits with an interpretation that the statutory language requires. Nothing in the text of ERISA mandates such a requirement, and NAFA provides no evidence to necessitate reading one into it.

“NAFA’s insistence that fiduciary status is limited to persons involved in “’plan management and administration’ would essentially read the second prong out of the statute altogether and give it no significance at all, independent or otherwise,” the DOL says in its response.

NAFA defends its reading by positing that Congress adopted a definition of “investment advice” in ERISA “[s]imilar to” the definition of “investment adviser” in the Adviser’s Act, the latter of which distinguishes “between persons engaged in rendering investment advice for compensation and those persons ... merely ... selling products.” Given that Congress was aware of this distinction when it enacted ERISA in 1974, NAFA posits that Congress “incorporated those very concepts into ERISA,” such that fiduciary status would not apply to “salespersons compensated only for their sales.” But, the DOL says NAFA’s argument again misses the mark. To create the distinction that NAFA identifies, Congress in the Adviser’s Act “define[d] ‘investment adviser’ broadly and create[d] ... a precise exemption for broker-dealers.” Had Congress intended to adopt the same distinction in ERISA, presumably it would have done so expressly, as it did in the Advisers Act, by including a similar exemption. As there is no such exemption in ERISA, one can presume that Congress did not mean to limit investment advice under ERISA in the way NAFA suggests.

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