Sutherland Alert: DOL Proposes to Expand “Fiduciary” Status under ERISA

On October 22, 2010, the U.S. Department of Labor (DOL) proposed to replace its long-standing regulation defining the circumstances in which investment advice confers "fiduciary" status under ERISA, with a new, more expansive definition. The proposal would take effect 180 days after publication of a final regulation.

By way of background, ERISA imposes a famously "comprehensive and reticulated"1 scheme of regulation for the terms of employee benefit plans, particularly retirement plans, and for plan reporting and disclosure. But for the management of plans, ERISA instead relies primarily on a standards-based form of regulation, and at the core of that regulation is the concept of a "fiduciary" to the plan. Such fiduciaries are charged with carrying out their duties for the plan in accordance with rigorous fiduciary standards (ERISA §404) and are barred from engaging in certain prohibited transactions (ERISA §406). For example, acting with a conflict of interest generally would be contrary to these fiduciary standards. Fiduciaries are personally liable for losses suffered by a plan resulting from a violation of these standards, as well as for other remedies and penalties.

ERISA §3(21) provides that three classes of persons are fiduciaries for purposes of ERISA, generally:

  • Persons with discretionary authority or responsibility in the administration of the plan ("plan administration fiduciaries");
  • Persons who provide investment advice for a direct or indirect fee or other compensation with respect to the moneys or other property of the plan ("investment advice fiduciaries"); and
  • Persons who manage plan assets on a discretionary basis ("discretionary asset management fiduciaries").

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