Aon Hewitt Retirement & Investment

Transcription

1 Risk. Reinsurance. Human Resources.

2 After more than five years, on April 6, 2016 the U.S. Department of Labor ( DOL ) issued the final regulations defining what it means to be an investment advice fiduciary. This regulatory process started in 2010 and included two sets of proposed regulations, days of testimony and more than 3,000 comment letters. Under the Employee Retirement Income Security Act of 1974 ( ERISA ) and the Internal Revenue Code ( Code ), a person will be treated as an investment advice fiduciary as a result of receiving a fee or other compensation for providing investment advice to an employee benefit plan or an individual retirement account, or its participants or beneficiaries (jointly participants ), or IRA owners. The final fiduciary rules expand the scope of who may be considered investment advice fiduciaries under ERISA and the Code and require that such advisers act in the best interest of those who are the beneficial owners of the plans and IRAs. The final regulations are effective June 7, 2016 but will not become applicable until April 10, Although there were numerous attempts to delay the final regulations, the DOL put an early effective date into place to provide a degree of certainty to plans, plan fiduciaries, participants, IRAs, and IRA owners (collectively, protected persons ). The DOL noted that, in light of the time needed for plans to evaluate the rules and for their service providers to adjust to the new rules and possibly their new fiduciary status, the rules provide for the delayed applicability date, and certain new or amended prohibited transaction exemptions have later phased-in effective dates. From a plan sponsor perspective, the final regulations may appear somewhat daunting, but upon closer inspection the rules may not be as overwhelming for larger plans. However, financial services providers serving small plans and IRAs may find the impact of the final regulations on their businesses far more challenging. Highlights for Plan Sponsors Although technically effective on June 7, 2016, the new final fiduciary rules are not applicable until April 10, Before that time, plan sponsors will need to consider the implications to their plans, participants, and third-party advisers. As we will discuss more fully in this summary, plan sponsors should take the following initial steps to evaluate the final fiduciary regulations: Evaluate Existing Investment Education Materials: Plan sponsors increasingly make efforts to assist their plan participants with investment information designed to provide guidance on how best to save for retirement. There has long been a concern that such education may rise to the level of investment advice and may cause the plan sponsor to become an ERISA fiduciary with respect to such underlying investment decisions by participants. The new rules provide guidance on how best to evaluate the educational information being communicated to plan participants. Review Roles of Third-Party Advisers: The roles of third-party advisers to the plan or its participants are a primary focus of the fiduciary regulations. Plan sponsors will want to evaluate the roles of any financial service providers to confirm if such advisers are acting as plan fiduciaries with respect to the investment advice or services they may provide to the plan and plan participants. Confirm Plan Governance and Expectations: The final rules make it clear that plan sponsors should Final Fiduciary Regulations Overview for Plan Sponsors 1

3 examine (or reexamine) their plan governance to confirm who is expected to act as a plan fiduciary, who is responsible for oversight with respect to monitoring the activities of such plan fiduciaries, and which service providers are not presently plan fiduciaries obligated to act in the best interest of the plan or its participants. Review of Employee Communications: The final rules should be a wake-up call to plan sponsors to review their plan disclosures (e.g., summary plan descriptions and investment summaries) as well as call center scripts, asset allocation models, interactive investment tools, and retirement/distribution packages to confirm what information is provided with respect to rollovers and post-distribution investment opportunities and whether such information may constitute investment advice under the final regulations. More to Come: At this point in time, the above are only a few of the areas that a plan sponsor will likely want to examine as it evaluates how the final fiduciary regulations may impact the role of the plan sponsor and its advisers, as well as examining what plan and investment information is provided to plan participants. We anticipate providing additional guidance during the coming months as we assist clients in evaluating the new rules and in addressing any additional DOL guidance that may be issued. Summary of Final Fiduciary Rules: New Guidelines and Definitions In evaluating the implications of the final fiduciary rules, it is important that plan sponsors understand the issues that may potentially be impacted by the rules, and evaluate what actions, if any, may be necessary to protect the interests of plan sponsors and participants. As a starting point, we have provided answers to some of the more common questions that plan sponsors may have regarding the final fiduciary rules. What plans or arrangements are covered by the fiduciary rules? The final fiduciary rules cover employee benefit plans (as defined in section 3(3) of ERISA and Section 4975(e)(1)(A) of the Code) and thus may include: Retirement plans and certain health and welfare plans that have an investment component ( plans ) Certain individual savings arrangements, including individual retirement accounts or annuities described in Code sections 408(a) and 408(b) Health savings accounts described in Code section 223(d) Archer Medical Savings Accounts and Coverdell Education Savings Accounts An annuity contract or account described in Code section 403(b), if held under a program that is subject to ERISA as an employee benefit plan A program that qualifies as a governmental plan or a non-electing church plan is not subject to ERISA, so typically such programs would not be subject to the final rules. Final Fiduciary Regulations Overview for Plan Sponsors 2

4 Who is a fiduciary under the final rules? The final fiduciary rules treat a person who provides investment advice (i.e., certain recommendations ) for a fee or other compensation with respect to assets of a plan or IRA as a fiduciary. While the final rules have been revised to narrow the scope of the proposed rules in a number of areas that raised concern, the final fiduciary rules nonetheless will cover a wider array of financial and investment relationships than under existing law. What constitutes investment advice? The new rules primarily focus on defining what is considered investment advice under ERISA and the Code and identifying the individuals or organizations providing such investment advice to protected persons. The final rules provide that a person shall be deemed to be rendering investment advice with respect to assets of a plan or IRA if that person is providing the following services for a fee or other compensation, direct or indirect: Recommendations Involving Securities or Investment Property: A recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property. For example, this situation would arise if a financial adviser recommends that the plan sponsor or its investment committee invest plan assets in a particular stock or mutual fund. Recommendations Involving Rollovers, Transfers or Distributions: A recommendation as to how securities or other investment property should be invested after the securities or other investment property are rolled over, transferred, or distributed from the plan or IRA. For example, if a financial adviser recommends that a plan participant rollover money into an IRA offered by the financial adviser s investment firm, such action would likely be treated as a recommendation involving securities or investment property; or Recommendations Involving Management of Securities or Investment Property: A recommendation as to the management of securities or other investment property includes, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements (e.g., brokerage versus advisory); or recommendations with respect to rollovers, transfers, or distributions from a plan or IRA, including whether, in what amount, in what form, and to what destination such a rollover, transfer, or distribution should be made. Similarly, to the extent that a plan investment committee relies on a third-party financial adviser to provide recommendations regarding plan-related investments, such recommendations may constitute investment advice under the final rules, requiring that the adviser act in the best interest of the plan and its participants. What property is considered investment property for purposes of the fiduciary rule? In determining what property is considered investment property, the final regulations require the property to have an investment component. For example, health or disability insurance policies, term life insurance policies, or other assets that do not include an investment component are excluded. However, health savings accounts generally would include investment property and investment advice may be provided with respect to the assets held in these accounts. What constitutes a recommendation?: With respect to the investment advice described above, a recommendation is considered to have been made when either directly or indirectly (e.g., through or together with one or more affiliates), a person: Represents or acknowledges that it is acting as a fiduciary within the meaning of ERISA or the Code; Final Fiduciary Regulations Overview for Plan Sponsors 3

5 Renders the advice pursuant to an agreement, arrangement, or understanding (written or verbal) that the advice is based on the particular investment needs of the recipient; or Directs advice to a specific recipient or recipients regarding merits of a particular investment or management decision relating to securities or other investment property of the plan or IRA. Example: Company A sponsors a 401(k) plan in which participants direct the investments in their plan accounts. Upon retirement, a participant may roll over her account to an IRA or may leave the account invested under the plan (subject to the ordinary distribution rules). Pete is a plan participant getting ready to retire from Company A. Tom works at the call center (run by the plan sponsor or a third-party administrator) set up to handle inquiries from participants in the Company A 401(k) plan. Pete calls Tom for information about what he can do with his 401(k) account. Tom directs Pete to general information about distributions from the Company A plan, including the right to roll an account over into an IRA. Mary works at a company that provides financial services. Pete calls Mary for information about what he can do with his 401(k) account. Mary asks Pete questions about his finances and suggests that Pete roll his account into an IRA at her financial services company. Since the information Tom offered was general and not related to Pete s particular circumstances, Tom s communication with Pete is not likely to be considered a recommendation for purposes of fiduciary investment advice. In contrast, Mary s suggestion to rollover into an IRA at her financial services company is likely to be considered a recommendation. How to Determine if a Recommendation Has Been Made: The final regulations distinguish recommendations from other forms of communication that may take place in the context of plan or IRA investments. The regulations state that the determination of whether a recommendation has been made is an objective rather than subjective inquiry. Whether a communication rises to the level of a recommendation depends on its content, context, and presentation. Essentially, the determination comes down to whether the communication would reasonably be viewed as a suggestion that the recipient engage in or refrain from taking a particular course of action. The more tailored the communication to a protected person is relating to a security, investment property, or investment strategy, the more likely the communication will be viewed as a recommendation. Certain Actions Not Treated as Recommendations: The following activities will generally not be viewed as providing a recommendation (absent additional facts to the contrary): Platform Providers Without regard to the specific needs of a plan, service providers may make available a platform or similar mechanism to plan fiduciaries that choose the specific investment alternatives that will be made available to participants of individual account plans. The plan fiduciary responsible for selecting and monitoring investment alternatives must be independent of the platform provider. In addition, the platform provider must state in writing that it is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity. As a result, when platform providers respond to requests for proposals, or provide objective financial data regarding available alternatives to the plan, such information alone would not cause the platform provider to be a fiduciary investment adviser. Final Fiduciary Regulations Overview for Plan Sponsors 4

6 Selection and Monitoring Assistance A person may identify investment alternatives that meet objective criteria (e.g., expense ratios, size of fund), provided that the person discloses any financial interest in the identified alternatives. In response to a request for information or request for proposal a person may provide a sample set of investments based solely on the size of the plan, current investment alternatives, or both, as long as the response is in writing and it discloses whether the person providing the samples has a financial interest. A person also may provide objective financial data and comparisons with independent benchmarks to the plan fiduciary. Such assistance would not rise to the level of investment advice. General Communications To the extent that a person provides general communications that a reasonable person would not view as an investment recommendation (e.g., a general investment strategy newsletter), such communication material would not be considered to be investment advice. Investment Education Plan sponsors may make available to participants information about plan features, general information about financial, investment, and retirement matters, asset allocation models, and interactive investment materials. This topic is likely to be of the greatest concern to plan sponsors and is described more fully below. Plan Sponsors Investment Education While plan sponsors have attempted to provide investment guidance to plan participants in an effort to educate them on how best to save and invest for retirement, there has long been a concern that such education may rise to the level of providing investment advice and may cause the plan sponsor to become an ERISA fiduciary with respect to such information. Under the final rules, there are four broad categories of investment education that will not subject the plan sponsor, fiduciary, or service provider to fiduciary investment adviser status, provided the criteria necessary to qualify within the relevant category are followed: Plan Information. Plan sponsors (or other educators) are expressly permitted to provide plan information to plan participants without becoming a fiduciary investment adviser. Plan information includes information that describes the terms or operation of the plan or IRA and informs the participant about plan or IRA participation, fees and expenses, and the impact of withdrawals and general risks of different forms of distributions from the plan or IRA. However, the information provided cannot reference the appropriateness of any individual investment alternative or any individual benefit distribution option for the participant. General Financial, Investment, and Retirement Information. Similarly, plan sponsors (or other educators) are permitted to provide general financial, investment, and retirement information to plan participants as long as the materials do not address specific investment products, specific plan or IRA investment alternatives or specific distribution options available to plan participants, and IRA owners, or specific investment alternatives or services offered outside the plan or IRA. In addition, in order not to fall under the fiduciary requirements, the general information must be limited to informing the participant about general financial and investment concepts such as risk and return, diversification, dollar cost averaging, compounded return, tax deferred investment, historic Final Fiduciary Regulations Overview for Plan Sponsors 5

7 differences in rates of return between different asset classes, and certain other matters enumerated in the regulations. Asset Allocation Models. Plan sponsors can also provide a participant (with some exceptions described below) with models of asset allocation portfolios (e.g., pie charts, graphs, or case studies) involving hypothetical individuals with different time horizons (which may extend beyond an individual s retirement date) and risk profiles, provided that the following criteria are satisfied: Such models are based on generally accepted investment theories that take into account the historic returns of different asset classes (e.g., equities, bonds, or cash) over defined periods of time; All material facts and assumptions on which such models are based must accompany the models (e.g., retirement ages, life expectancies, income levels, financial resources, replacement income ratios, inflation rates, and rates of return); The presentation of the model includes a statement indicating that, in applying particular asset allocation models to their individual situations, individuals should consider their other assets, income, and investments (e.g., savings accounts, interests in other qualified and non-qualified plans, equity in a home, Social Security benefits, and individual retirement plan investments) in addition to their interests in the plan or IRA (in the event those items are not taken into account in the model or estimate); and The model does not include or identify any specific investment product or investment alternative available under the plan or IRA. However, an asset allocation model may identify a specific investment alternative available under a plan (but not an IRA) under certain conditions. The investment alternative must be a designated investment alternative, as defined by the participant fee disclosure rules (29 CFR a 5(h)(4)), subject to oversight by a plan fiduciary independent from the person who developed or markets the investment alternative or model. All other designated investment alternatives available under the plan that have similar risk and return characteristics, if any, must be identified. In addition, the presentation of the model must be accompanied by a statement indicating that those other designated investment alternatives have similar risk and return characteristics. The statement also must indicate where information on those investment alternatives may be obtained. Interactive Investment Materials. These materials are questionnaires, worksheets, software, and similar materials that provide a participant with the means to estimate future retirement income needs and assess the impact of different asset allocations on retirement income. The use of such materials to evaluate distribution options, products, or vehicles or to estimate a retirement income stream that could be generated by an actual or hypothetical account balance will also not cause the provider of such information to be a fiduciary solely by reason of furnishing such interactive investment materials. However, these materials will not constitute an investment recommendation only if, among other things, an objective correlation between the income stream generated by the materials and the information and data supplied by the plan participant, beneficiary, or IRA owner can be made. The final regulations identify additional criteria that must be met to satisfy this exception. Special Note Asset Allocation Models and Interactive Investment Materials for Self-Directed Brokerage Windows and IRAs Are Not Covered by Investment Education Exception: The DOL expressed concern with the use of asset allocation models and interactive investment materials with Final Fiduciary Regulations Overview for Plan Sponsors 6

8 specific investment alternatives available through a self-directed brokerage account or within an IRA and indicated that such materials (presented in connection with a self-directed brokerage window or IRA) are not covered by the education provision in the final rule. The DOL was concerned that such communications lack the safeguards associated with oversight by an independent fiduciary. Accordingly, any investment alternatives presented to IRAs or self-directed brokerage windows may be intended to lead to a specific investment product or alternative and will not be considered to be investment education. Plan Sponsors Advice Provided by Employees of the Plan Sponsor Apart from individuals who acknowledge or represent that they are acting as a fiduciary, a person will not be considered a fiduciary investment adviser simply because he or she is acting in his or her capacity as an employee of the plan sponsor, affiliate of the plan sponsor, employee benefit plan, or employee organization, or as an employee of a plan fiduciary, if the person provides: Advice as an Employee of the Plan Sponsor: Advice provided to a plan fiduciary, an independent contractor, or an employee (other than in his or her capacity as a participant or beneficiary of an employee benefit plan) of the plan sponsor, affiliate, or employee benefit plan would not make the provider of such advice a fiduciary investment adviser, provided that that the employee providing the advice receives no compensation, direct or indirect, in connection with the advice beyond the employee s normal compensation for work performed for the employer. This exception may allow, for example, in-house financial and investment professionals to support the work of a plan s investment committee. Advice to Plan Participants by an Employee of the Plan Sponsor Whose Job Responsibilities Do Not Include Providing Investment Advice: Advice to another employee of the plan sponsor in the receiving employee s capacity as a participant or beneficiary of the plan would not make the provider of such advice a fiduciary investment adviser, as long as the job responsibilities of the person providing the advice do not involve the provision of investment advice or investment recommendations, the provider is not registered or licensed under federal or state securities or insurance laws, and the person providing the advice receives no fee or other compensation, direct or indirect, in connection with the advice beyond his/her normal compensations for work performed for the employer. This exception might cover, for example, water cooler conversations in which one co-worker makes comments to others about investments in the employer s plan. Plan Sponsors Other Areas of Interest Financial Adviser Transactions with Independent Fiduciaries of the Plan Sponsor Having Financial Expertise: Investment advisers providing advice to plan sponsors and plan fiduciaries may not be subject to the final fiduciary rules if an independent plan fiduciary meets any of the criteria set forth below. Thus, for example, a person working with a plan sponsor on investment matters will not be deemed to be a fiduciary investment adviser simply because he or she engages in transactions with a plan under circumstances where the fiduciary of the plan (or its plan investment committee) is considered to be an independent fiduciary with financial expertise. However, the third-party investment Final Fiduciary Regulations Overview for Plan Sponsors 7

9 adviser providing the advice must know or reasonably believe that the independent fiduciary for the plan or IRA is: a bank or similar institution regulated by a state or federal agency an insurance carrier qualified under the laws of more than one state to perform asset management services for a plan an investment adviser registered under the Investment Advisers Act of 1940 or other permitted registration a broker-dealer registered under the Securities Exchange Act of 1934; or an independent fiduciary that holds, or has under management or control, total assets of at least $50 million. Moreover, the third-party investment adviser must know or reasonably believe that the independent fiduciary of the plan or IRA is capable of evaluating investment risks independently (both in general and with regard to particular transactions and investment strategies). From a plan sponsor perspective, this last item (at least $50 million under management) is likely to be the most common criterion on which investment advisers will rely. In determining if the $50 million threshold has been met, the provision does not require that the $50 million be attributable to the subject plan, but allows all the plan and non-plan assets under management to be included in the determination. In order to be eligible for any of the five exceptions noted above, the service provider must satisfy the following criteria: Disclose that Advice Is Not Intended to be Impartial: The person providing such advice to the independent fiduciary for the plan must inform such fiduciary that the person is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity with respect to the transaction; Disclose Financial Interest in the Transaction: The person providing such advice must inform the plan s independent fiduciary of the person s financial interests in the transaction; Reasonably Believe that Advice is Being Provided to an ERISA or Code Fiduciary: The person providing such advice must know or reasonably believe that the independent fiduciary of the plan or IRA is a fiduciary under the Code or ERISA with respect to the transaction and is responsible for exercising independent judgment in evaluating the transaction; and No Fee from Protected Person in Connection with Transaction: The person providing such advice cannot receive a fee or other compensation directly from the plan, plan fiduciary, plan participant, beneficiary, IRA, or IRA owner for the provision of such investment advice. Swap and Security Based Swap Transactions: Apart from individuals who acknowledge or represent that they are acting as a fiduciary, certain authorized persons who provide advice to an employee benefit plan and who are authorized to engage in swap or security-based swap transactions will not be treated as fiduciary investment advisers under ERISA or the Code solely by reason of such activities, provided that they meet certain requirements specified under the final fiduciary regulations. Limitations on Scope of Fiduciary Duty: The final fiduciary regulations indicate that certain other individuals will not be viewed as providing investment advice and will not be considered a fiduciary under ERISA solely by reason of the actions described below: Final Fiduciary Regulations Overview for Plan Sponsors 8

10 No Fiduciary Authority or Control over Plan or IRA Assets: A person who may otherwise be a fiduciary by reason of providing investment advice for a fee (or having the authority or responsibility to do so) with respect to certain assets of a plan (or IRA) will not be deemed to be a fiduciary regarding other assets of the plan/ira if he or she does not have any discretionary authority, control, or responsibility for, does not exercise any authority or control over such assets, and does not render (or have authority or responsibility to render) investment advice for a fee or other compensation. However, such person still may have co-fiduciary responsibility. Plan Sponsors Working with Broker-Dealers That Execute Transactions Involving Plan Assets: A person who is a broker or dealer registered under the Securities Exchange Act of 1934, a reporting dealer who makes primary markets in U.S. Government securities and reports daily to the Federal Reserve Bank of New York its positons with respect to such securities and borrowings thereon or a bank supervised by the United States or a State, shall not be a fiduciary with respect to a plan or IRA solely because such person executes transactions for the purchase or sale of securities on behalf of such plan or IRA in the ordinary course its business according to the instructions of a fiduciary, provided that certain criteria set forth in the final fiduciary regulations is followed. New and Amended Prohibited Transaction Exemptions Unless otherwise permitted by the final fiduciary regulations or the new or amended prohibited transaction exemptions, a fiduciary s provision of investment advice to a plan, plan participants, or IRA owner for a fee is a prohibited transaction under ERISA or the Code. In the final regulations, the DOL has attempted to accommodate certain business models under the new investment advice rules by separately publishing new or amended exemptions from the Code s and ERISA s prohibited transaction rules. These new and/or amended exemptions attempt to broadly permit financial service providers to continue to receive many common types of fees, as long as they are willing to adhere to standards aimed at ensuring that their advice is impartial (i.e., free of conflicts of interest) and in the best interest of their clients. A brief description of some of these exemptions follows: Best Interest Contract ( BIC ) Exemption The BIC Exemption has received the most attention from financial institutions, financial advisers, and broker-dealers. ERISA and the Code generally prohibit fiduciaries from receiving payments from third parties and from acting based on conflicts of interest, including using their authority to affect or increase their own compensation in connection with transactions involving a plan or IRA. In reviewing these arrangements, the DOL noted that certain types of fees and compensation common in the retail market, such as brokerage or insurance commissions, 12b 1 fees and revenue sharing payments, may fall within these prohibitions when received by an investment advice fiduciary as a result of transactions involving advice to protected persons. The intent of the BIC Exemption is to align individual advisers' interests with those of the plan or IRA client, while leaving the adviser and financial institution some flexibility in designing the business model that best serves their clients. Purpose of the BIC Exemption The BIC Exemption allows financial advisers to continue to receive certain forms of compensation, provided that they acknowledge their fiduciary status and adhere to basic standards of impartial conduct. Among other things, they must commit to following impartial conduct standards in providing services (e.g., avoiding misleading statements, act in customer s best interest, and receive no more than reasonable compensation), as well as adopting anti-conflict of interest policies and procedures (including avoiding certain incentive practices), and disclosing compensation and fees and any conflicts of interest that could affect the adviser s best judgment as a fiduciary rendering investment advice. Final Fiduciary Regulations Overview for Plan Sponsors 9

11 Types of Compensation Permitted under the BIC Exemption The BIC exemption permits certain forms of compensation, such as commissions, revenue sharing and 12b-1 fees, whether paid by the client or a third party such as a mutual fund, provided the conditions of the exemption are satisfied. The terms for the BIC Exemption can be quite detailed, and should be carefully reviewed when entering into an exempt arrangement with a financial adviser or institution. Timing and Effective Date The final regulations also clarify when the BIC Exemption contract had to be signed now permitting the contract to be entered into before or at the time of the execution of a new recommended transaction and allows negative consent under certain limited circumstances. Of additional assistance to financial institutions and their advisers, the final exemption requires certain conduct by April 10, 2017 (e.g., relating to recommendations regarding rollovers and plan distributions), and permits a phased-in approach permitting full implementation by January 1, 2018 (e.g., relating to full disclosure, contract requirements, and policies and procedures) with compliance (but not enforcement) expected during the transition period. Principal Transaction Exemption This exemption allows investment advice fiduciaries to engage in purchases and sales of certain investments (e.g., debt securities) out of their inventory (i.e., engage in principal transactions) from or to plans or IRAs, under conditions designed to safeguard the interests of these investors. In the absence of an exemption, these transactions would be prohibited under ERISA and the Code. Similar to the BIC Exemption, advisers must follow basic standards of impartial conduct, including avoiding misleading statements, acting in customer s best interest, and receiving no more than reasonable compensation. Other Prohibited Transaction Relief Although not directly applicable to many plan sponsors, the DOL also issued a number of new or amended prohibited transaction exemptions including an amendment to Prohibited Transaction Exemption (PTE) 75-1, Part V (Exemptions From Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefit Plans and Certain Broker-Dealers, Reporting Dealers and Banks); an amendment to and partial revocation of Prohibited Transaction Exemption (PTE) (for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters); an amendment to and partial revocation of Prohibited Transaction Exemption (PTE) (for Securities Transactions Involving Employee Benefit Plans and Broker-Dealers); an amendment to and partial revocation of PTE 75-1 (Exemptions From Prohibitions Respecting Certain Classes of Transactions Involving Employee Benefits Plans and Certain Broker-Dealers, Reporting Dealers and Banks); and amendments to Class Exemptions 75-1, 77-4, and The purpose of these amendments is to ensure that plans and participants are protected by the impartial conduct standards regardless of which exemption an adviser relies upon when providing services. Next Steps for Plan Sponsors From a plan sponsor perspective, there are a number of situations and relationships that may require closer scrutiny in an effort to determine if they may involve the provision of investment advice for a fee or other form of compensation. While there are several areas that will likely need to be addressed in the coming months as employers and their advisers evaluate the new rules (and the DOL issues additional guidance), there are several actions that plan sponsors may want to consider in the interim: Final Fiduciary Regulations Overview for Plan Sponsors 10

12 Review Investment Education Materials: One area expected to receive significant attention from plan sponsors is the provision of investment education designed to advise plan participants as to how best to save and invest for retirement. There has long been a concern that such education may rise to the level of providing investment advice and may cause the plan sponsor to become an ERISA fiduciary with respect to such underlying investment decisions by participants. Review Roles of Third-Party Advisers: Plan sponsors will want to evaluate the roles of any financial advisers providing services to the plan and plan participants and confirm their fiduciary status. Review of Plan Governance: The final rules provide a great reason for plan sponsors to examine (or reexamine) their plan governance to confirm who is expected to be acting as a plan investment fiduciary, and who is not. Such review may prove helpful in general evaluations of financial service providers in determining whether providers are acting in the best interest of the plans or their participants. Review of Employee Communications: The final rules should alert plan sponsors to review their summary plan descriptions, call center scripts, investment summaries, asset allocation models, interactive investment materials, and retirement/distribution packages to confirm what information is provided with respect to rollovers and post-distribution investment opportunities. The above summary is only the very beginning of what will likely involve a careful analysis by plan sponsors as to who provides services to the plan and its participants, what activities rise to the level of fiduciary investment advice, and whether third-party financial services are being provided in the best interest of the plan and its participants. Final Fiduciary Regulations Overview for Plan Sponsors 11

13 Contact Information Thomas W. Meagher Senior Partner Practice Leader Aon Hewitt Legal Consulting & Compliance Elizabeth Groenewegen Associate Partner Aon Hewitt Final Fiduciary Regulations Overview for Plan Sponsors 12

14 About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement, and health solutions. We advise, design, and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability, and wellness. Aon Hewitt is the global leader in human resource solutions, with over 35,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information, please visit aonhewitt.com. Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON) Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt s preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Aon Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt reserves all rights to the content of this document. Final Fiduciary Regulations Overview for Plan Sponsors 13