If your company sponsors a retirement plan, you need expert advice on managing your fiduciary risk. Eric Funk, director of retirement services and planning at Fidelity Investments, recently held a seminar for Nevada State Bank business clients to explain how proposed changes to federal regulations may impact administrators of company retirement plans.

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law establishing minimum standards for pension plans in private industry. Under ERISA, a fiduciary is anyone who has authority over plan assets or management, anyone responsible for plan administration, and anyone who gives investment advice for a fee. Many business owners whose companies have 401(k) or other pension plans are considered fiduciaries.

Funk, who has worked with retirement plans for almost 19 years, explained that the Obama administration proposed a new Fiduciary Investment Advice Rule that was designed to increase protections for plan participants. This rule is currently on hold because of the Trump administration’s embargo on enacting any new regulations. Although Republicans have a supermajority (both houses of Congress, the White House, and the Supreme Court), there’s still uncertainty about whether the proposed rule will be enacted as planned this year. However, Funk said many retirement planners and plan administrators are reviewing their policies to make sure they will be in compliance when and if the rules change.

Here are some of the points covered in Funk’s presentation:

Federal policymakers are concerned with three principal areas: benefit security (making sure investments are as safe as possible); coverage (ensuring that employees have the opportunity to participate in a retirement plan); and tax subsidy (getting tax revenues from retirement plan income as soon as possible).

Benefit security: Current regulations stipulate that a fiduciary must steer people to investments that are “suitable” for them; for example, it would be suitable for a young person to make investments that pay off in the long term, but carry short-term risk; however, these kinds of investment products would not be suitable for someone nearing retirement age. The proposed Fiduciary Investment Advice Rule would add a requirement that the advisor must put the client’s interest ahead of their own. This might mean steering them toward a less expensive product, even if it means less profit for the advisor.

Another proposed change would be to require all company retirement plans to be “opt-out” instead of “opt-in” to encourage more participation, automatically increasing the contribution percentage each year until it reaches 10 percent.

Coverage: Several proposals are aimed at increasing the number of people covered by retirement plans. An Auto-IRA would require companies not offering a retirement plan to set aside a percentage of each employee’s paycheck to be put into an IRA. Some states are also considering state-run retirement plans. Multiple Employer Plans (MEPs) currently allow small businesses to come together to sponsor plans, but current regulations make MEPs cumbersome, so regulators are looking for ways to ease the burden of paperwork. Small businesses receive a tax credit for sponsoring retirement plans, and the government may increase the tax credit to make it more attractive for employers to participate.

Tax subsidy: The federal government only looks forward 10 years in planning its tax revenues. Retirement plan income may not be taxed for many years while employees are still working and deferring taxes, so the government is interested in ways to collect tax money sooner than that. One strategy would be to require that all retirement plans be funded with after-tax money like Roth IRAs. Another would be to lower the caps on retirement plans, reducing the amount that could be set aside and tax-deferred each year. Also in the works are proposals to eliminate so-called “Stretch IRAs,” which enable participants to leave the IRA in their will to a beneficiary who wont’ have to pay taxes on it until they are ready to retire.

Increased Focus on Fiduciaries

In addition to the “best interest” standard mentioned above, the proposed Fiduciary Investment Advice Rule expands the range of activities that are now considered fiduciary-level investment advice. It includes qualified retirement plans, roll-overs, IRAs, and Health Savings Accounts. Some activities previously considered educational or administrative duties may now be classified as fiduciary.

“Over the last 5 to 10 years, as regulations were ramped up, the Department of Labor hired more staff, and now they have more enforcement personnel than ever,” said Funk. “More companies are getting fined for being late on contributions or for minor infringements. In addition, it seems like every day we hear about another lawsuit based on retirement plans.” For these reasons, it’s more important than ever for anyone labeled a fiduciary to be aware of the regulations and to document all their actions in case of an audit or lawsuit.

For more information about fiduciary responsibilities, setting up or administering a retirement plan for your company, contact Scott Levy, CFP, VP/Enterprise Retirement Solutions, a division of Zions Bancorporation. Scott.Levy@zionsbancorp.com or 800-324-6705.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.