PenChecks Trust and the New DOL Fiduciary Ruling
In April of this year, the Department of Labor (DOL) issued a new ruling that redefines the definition of “fiduciary” for those providing investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners1. Going forward, these advisors must either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the Department.
Quoting directly from a DOL web page on this topic:
“Under new exemptions adopted with the rule, firms will be obligated to acknowledge their status and the status of their individual advisers as “fiduciaries.” Firms and advisers will be required to make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and make no misrepresentations to their customers regarding recommended investments. Together, the rule and exemptions impose basic standards of professional conduct that are intended to address an annual loss of billions of dollars to ordinary retirement investors as a result of conflicted advice.”
Over the past several months, PenChecks Trust has received numerous inquiries from our clients regarding the impact of the ruling on our products and services. In particular, they are wondering whether recommending us to their clients makes them a fiduciary under the new ruling.
The answer is NO, and here’s why.
None of PenChecks Trusts’s current services – Distribution Processing, Default/Missing Participant IRAs, Abandoned Plan/QTA services, Uncashed/Stale Dated Checks and Custodian – involves investment advice or recommendations to retirement plans, plan participants, or owners of traditional IRA accounts. Accordingly, the new rule does not impact us or those who may recommend us.
The ruling does change the definition of “fiduciary investment advice” under §3(21) of ERISA. Its treats persons who provide investment advice or recommendations for a fee (or other compensation) with respect to plan or IRA assets as fiduciaries in a wide array of advice relationships. Regardless, none of our current services involve providing investment advice, investment management, or investment recommendations to any of the individuals, groups or entities described in the ruling.
Why You Don’t Need to Worry
Instead, our services are governed by other rules or are otherwise outside the scope of the new rule.
- Distribution Processing. This back-office processing service does not provide investment advice, management or recommendations of any kind. We receive instructions from our clients on who we’re instructed to pay, how much and when, and we make the payment in a timely manner.
- Automatic Rollover IRAs and Missing Participant (Default) IRAs. These specialized IRAs are governed by their own regulations, specifically 29 CFR 2550.404a-2 and 2550.404a-3, respectively. They also have their own investment restrictions (preservation of principle, consistent with liquidity) and Safe Harbor, which were unaffected by the new fiduciary rule. When plan participants claims their funds in these accounts, all we do is distribute them per the participant’s instructions. Again, no investment advice in any way, shape or form.
- Abandoned Plan/Qualified Termination Administrator (QTA) Service. The QTA service is also governed by its own regulations – 29 CFR 2578.1, 29 CFR 2550.404a-3, and 29 CFR 2520.103-13 – and also has its own Safe Harbor.
- Uncashed/Stale Dated Checks. This service for uncashed distributions involves money where the taxes were withheld, paid, and reported to the taxing authorities under a prior tax year. Therefore the assets are not covered by ERISA. PenChecks Trust searches for, locates and processes the payment to the plan participant once they are located.
- Custodian. Custodians safekeep assets to help protect against the risk of theft or loss. Again, there is no investment advice, management or recommendation of any kind.
So rest assured that recommending PenChecks Trust services to your clients does not make you a fiduciary under the new DOL ruling. We hope you will continue to recommend us, and we always appreciate it when you do!
Mike McWherter, J.D.