The Department of Labor’s Final Rule on Fiduciary Responsibility

Abstract

On April 18, 2016, the Department of Labor issued its Final Rule on fiduciary responsibility replacing its inadequate 1975 regulations. The retirement income environment had change drastically over the previous 40 years. Private sector traditional defined benefit pension plans had all but disappeared, replaced with defined contribution (mainly 401(k)) plans that almost always resulted in a lump sum distribution at termination or retirement, which was was typically rolled over into an IRA (individual retirement arrangement). The new regulations addressed the new situation by greatly expanding the definition of “fiduciary” to include those proffering investment advice to 401(k) plans and IRAs and reworking the prohibited transaction rules and their exemptions. This has afforded important protections for retirement investors and has created a challenging new new world for the financial services industry. This article examines the development, content and consequences of the Final Rule.