How The New DOL Rules Will Impact Your Small-Business Retirement Plan
When it comes to employee benefits administration, business owners typically think of health insurance but often neglect to consider their 401(k) plans.
Since retirement plans don’t have to be renewed every year like some other benefit packages, it’s easy for 401(k)s and other retirement and investment vehicles to get overlooked.
That’s about to change, thanks to updates to the Department of Labor’s Fiduciary Rule, which is expected to have a huge impact on the costs associated with managing these plans, particularly for small businesses.
What Is The Fiduciary Rule?
Historically, there’s been a distinct difference between how the two groups of financial advisers who work with investment and retirement plans are regulated. In short, the Fiduciary Rule essentially defines who is classified as a fiduciary and who is not.
Registered Financial Advisors (RIAs) have completed the necessary testing requirements to register with the SEC and any applicable state agencies. They’ve always been under the Fiduciary Rule, which means that they’re required by law to only give recommendations based on what’s truly best for their clients’ situations
Broker-dealers haven’t been covered by the stringent Fiduciary Rule but are required to provide what’s considered to be “suitable” recommendations. RIAs are typically compensated based on the percentage of assets that they manage while broker-dealers are paid based on transaction commissions.
Given the lower amount of regulatory compliance associated with broker-dealers, they tend to be a lower-cost option.
What Does It Mean For Your Business?
There’s been plenty of focus on how the new Fiduciary Rule will affect financial advisers, brokers and agents, but little to none on what these changes mean for small-business owners. The updates to the Fiduciary Rule mean that any financial professional who provides retirement planning advice will be elevated to the level of a fiduciary.
Whether or not an agent is classified as a fiduciary has a sweeping impact on the amount of regulatory qualifications that they must have, and usually means that they’re able to charge more. If your plan costs go up, you may be forced to consider a less attractive benefit package or suffer the hit to your bottom line.
What Are Your Next Steps?
You’ll need to do a little research to determine if your plan administrator is an RIA or a broker-dealer. If he or she is already an RIA, then there will be little to no disruption to your plan costs. However, if you’re using a broker dealer, there are likely going to be some serious consequences once the new legislation is implemented.
You’ll need to contact your broker to see how they’ll work with or around the new regulations.They could decide to take one of three approaches:
- They could ask you to enter into a Best Interest Contract Exemption, or BICE
- They could plan to become an RIA
- They could hire an outside fiduciary
Your best options, provided that you have a good working relationship with your broker and don’t see an advantage to moving to an RIA, would be that they either become or outsource to an RIA. While that could mean higher fees, entering into a BICE agreement is by far the most costly option of the three due to a mountain of disclosures and fee leveling.
Since the new regulations are going to hit small businesses the hardest, there’s already been pushback and lawsuits against their implementation. Total compliance of the Fiduciary Rule isn’t expected of small businesses until January 2018. Given the constant state of upheaval in our current administration, only time will tell if the Fiduciary Rule is here to stay.