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cipient engage in or refrain from taking
a particular course of action." Recom-
mendations are treated as investment
advice when rendered pursuant to a
written or verbal agreement, or under-
standing that the advice is based on
the particular needs of the recipient;
or directed to a specific person or per-
sons regarding the advisability of an
investment or management decision
with respect to securities or other in-
vestment property of the plan or IRA.
Although the Rule is directed primar-
ily toward broker-dealers and their fi-
nancial institutions, affiliates, and re-
lated entities, it applies regardless of
an adviser's status as an investment
adviser or broker under the federal
securities laws. Fiduciary status now
applies more broadly to anyone who
provides a "recommendation" about
plan investments to plan sponsors
or participants, and owners of 401(k)
and IRA plans for a fee. Such recom-
mendations may include advice as to
plan investment fund options, whether
to elect a rollover or other distribution
from a plan or IRA, and the manage-
ment of plan or IRA investments.
The DOL regulations also specify sce-
narios that are not considered to be
investment advice for purposes of
the Rule. For instance, the issuance
of valuations and appraisals for em-
ployee benefit plans are not covered
by the Rule. Further, investment advice
does not include general financial, in-
vestment, and retirement information,
certain asset allocation models, and
interactive investment materials. Also,
a person is not an investment advice
fiduciary if, in their capacity as an em-
ployee, they provide advice to a plan
fiduciary, or to an employee or inde-
pendent contractor of a plan sponsor,
so long as the person does not receive
a fee or other compensation in con-
nection with the advice beyond the
employee's normal employment com-
pensation. The Rule also includes a
"hire me" exception, which allows ad-
visers to recommend that a customer
hire them to provide advisory or asset
management services without becom-
ing a fiduciary.
The Fiduciary Rule applies to ERISA-
governed plans, plans that are tax-
qualified under Section 401(a) of the
Code, and plans covered by Section
4975 of the Code, as well as to the par-
ticipants in, or owners of, such plans.
Thus most 401(k) plans, profit shar-
ing plans, ESOPS, and most money
purchase and defined benefit pen-
sion plans are covered, unless they
fall into an excluded category (see
below). 401(k) plans that benefit only
self-employed individuals, SEPs, and
SIMPLEs are covered plans. Section
403(b) plans that are subject to ERISA
are also covered this includes 403(b)
plans sponsored by private tax-ex-
empt entities other than non-electing
church plans.
The Rule also covers traditional IRAs
and Roth IRAs (including payroll-de-
duction-only IRAs), as well individual
retirement annuities and HSAs. Archer
medical savings accounts (MSAs) and
Coverdell education savings accounts
are also covered.
The Rule does not impact non-ERISA
plans such as government plans, pay-
roll-deduction-only 403(b) plans, and
non-electing church plans. Other retire-
ment savings vehicles not covered in-
clude non-qualified deferred compen-
sation plans and non-qualified equity
based compensation arrangements, as
well as 457(b) and 457(f) plans (deferred
compensation plans that can be spon-
sored by government and private tax-
exempt employers). Traditional Uniform
Gifts/Transfers to Minors Accounts and
529 college savings plans are also not
impacted by the Rule.
ERISA fiduciary status requires that
providers of investment advice act with
prudence, solely in the interest of the
plan participants, and for the exclusive
purpose of providing benefits to the
participants and defraying reasonable
expenses of administering the Plan.
Accordingly, they cannot act for their
own benefit or in their own self-interest,
such as using their authority to affect
or increase their own compensation,
in connection with transactions involv-
ing a plan or IRA
2
. Failure to act in ac-
cordance with the ERISA standard of
conduct or engaging in self-dealing or
The Rule has garnered much
attention due to its broad
application not only to financial
institutions and their advisers,
but others who provide services to
plan sponsors, participants, and
retirement account owners as well.
(continued)
2
This precludes variable compensation arrange-
ments in connection transactions involving plans
and IRAs such as revenue sharing schemes
and commissions received by broker-dealers
and insurance agents.
Back again by popular demand!
CTCPA Beginner's Golf Clinic for Women
Thursday, July 13 4:00 to 7:00 p.m.
Tunxis Plantation Golf Course, Farmington
Register at
www.ctcpas.org/golfclinic
www.ctcpas.org
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