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Rollover or distribution advice

The Stapley letter

Questions raised

1. If an advisor who already is a fiduciary to the distributing plan recommends a rollover or distribution, is that recommendation automatically subject to ERISA fiduciary standards?

• Does it matter whether the advisor is a fiduciary with discretionary management authority, plan administrator authority or merely provides fiduciary advice that must be implemented by a third party? For example, arguably, a fiduciary that has the power to cause a distribution that benefits itself should be more problematic than a fiduciary that simply recommends (but cannot cause or control) such a transaction. Neither question is directly addressed by existing guidance.
• Instead, is it possible and practicable to “firewall” fiduciary status by accepting fiduciary responsibility for advice to the plan or plan sponsor on an “ongoing” basis, but specifically disclaiming fiduciary responsibility for distributions?
• Is it preferable in the absence of clear guidance to avoid fiduciary responsibility for rollover recommendations irrespective of whether the advisor provides any fiduciary services to the plan?

2. If a fiduciary to a plan does become a fiduciary for a recommended distribution from the plan, what are its options to ensure ERISA compliance?

• Reliance on the BIC Exemption, pursuant to transitional relief issued by DOL, for at least so long as such relief remains in effect;
• Attempting to level fees or otherwise avoid disparate fees for providing such recommendations;
• Requesting a new exemption; or
• Attempting to outsource distribution guidance to an independent third-party.

3. Is there a distinction between recommendations of voluntary distributions from a plan versus involuntary distributions (e.g., small cashouts or required minimum distributions)? Does the analysis change if the advisor recommends, instead of a rollover, a direct distribution to a taxable account or investment that pays the fiduciary fees? 4. Is it possible for one entity to act as a fiduciary providing investment advice to the plan and/or participants, while a different but affiliated entity provides non-fiduciary information regarding rollovers or distributions? Under what circumstances will conduct of affiliates be conflated? Allison W. Sizemore Khalif I. Ford