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Rollover or distribution advice

The Stapley letter

Questions raised

1. If an advisor who already is a fiduciary to thedistributing plan recommends a rollover or distribution, is thatrecommendation automatically subject to ERISA fiduciarystandards?

• Does it matter whether the advisor is a fiduciary withdiscretionary management authority, plan administrator authority ormerely provides fiduciary advice that must be implemented by athird party? For example, arguably, a fiduciary that has thepower to cause a distribution that benefits itself should be moreproblematic than a fiduciary that simply recommends (but cannotcause or control) such a transaction. Neither question isdirectly addressed by existing guidance.
• Instead, is it possible and practicable to “firewall” fiduciarystatus by accepting fiduciary responsibility for advice to the planor plan sponsor on an “ongoing” basis, but specifically disclaimingfiduciary responsibility for distributions?
• Is it preferable in the absence of clear guidance to avoidfiduciary responsibility for rollover recommendations irrespectiveof whether the advisor provides any fiduciary services to theplan?

2. If a fiduciary to a plan does become a fiduciaryfor a recommended distribution from the plan, what are its optionsto ensure ERISA compliance?

• Reliance on the BIC Exemption, pursuant to transitional reliefissued by DOL, for at least so long as such relief remains ineffect;
• Attempting to level fees or otherwise avoid disparate fees forproviding such recommendations;
• Requesting a new exemption; or
• Attempting to outsource distribution guidance to an independentthird-party.

3. Is there a distinction between recommendations ofvoluntary distributions from a plan versus involuntarydistributions (e.g., small cashouts or required minimumdistributions)?Does the analysis change ifthe advisor recommends, instead of a rollover, a directdistribution to a taxable account or investment that pays thefiduciary fees?4. Is it possible for one entity toact as a fiduciary providing investment advice to the plan and/orparticipants, while a different but affiliated entity providesnon-fiduciary information regarding rollovers ordistributions? Under what circumstances will conduct ofaffiliates be conflated?Allison W. SizemoreKhalif I. Ford