New Department of Labor Conflict of Interest Rule

The Department of Labor’s Conflict of Interest Rule is expected to go into effect on June 9, 2017. The intent of the rule is to ensure employees participating in tax-qualified plans are provided investment education (as opposed to advice) in accordance with the best interests of each particular employee. The rule generally affects NRECA as well as the Retirement Security (RS) and 401(k) Pension Plans and the cooperatives that offer these plans to their employees.

For the RS and 401(k) Plans, one key to being compliant with this rule is to avoid providing investment advice to employees about investment and retirement decisions. By comparison, staff can and should provide general plan information and investment education to employees that will help them make their own informed decisions about their financial future.

Providing investment advice may result in an individual being classified as a “fiduciary” which invokes the application of additional rules and potential liabilities unnecessarily. This is one reason why benefit administrators (BAs) should strive to provide investment education and not investment advice.

Generally, investment advice is a recommendation, suggestion or specific guidance provided to individuals or groups participating in the 401(k) or RS Plans as to the investment of or disposition of plan assets before or after a distribution or rollover. By comparison, it is ok to provide general communications or investment education about the plans, which includes plan information, general financial, investment and retirement information, asset allocation models and interactive investment materials. More details on the differences will be provided to co-ops in the communications described below.

NRECA’s preparations
The final rule (that is scheduled to go into effect on June 9, 2017) was published in April 2016, but had been proposed in October 2010. NRECA has been working behind the scenes since 2010 to ensure its compliance with the rule in advance of the effective date. NRECA will continue to provide quality investment education while not providing investment advice. Other companies providing investment advice sometimes do so to entice investors into their own products, which may not fully meet the objectives and needs of the investors. Under the new regulation, organizations providing this type of advice will be classified as fiduciaries and are subject to an additional set of rules governing investment advice fiduciaries. This classification generally holds these individuals and their organizations liable if their advice or investment products are inconsistent with the best interests of their investors.

Register for upcoming webinar
More information about the new rule will be made available to all co-ops participating in the RS Plan or 401(k) Plan throughout the year and in the future. NRECA is hosting a one-hour live webinar on Thursday, May 11 at 2pm, Eastern time to discuss more of the details; we encourage BAs to attend. Reserve your spot by registering today. The session will also include time for audience questions.