IRS Announces Transition Relief for Department of Labor's Fiduciary Rule

March 30, 2017

Last year, the Department of Labor (DOL) issued a final decision to expand protection of investors under the Employee Retirement Income Security Act (ERISA) of 1974. Earlier this week, the IRS announced transition relief for this rule. With this development, we’ve put together a quick refresher of the key things to know about the DOL rule and newly announced transition relief.  
Transition Relief for Fiduciaries

What does it mean if someone is a fiduciary?

A fiduciary is an individual who has a legal or ethical relationship of trust with another individual. Typically, this means they take care of investments and assets for another person. The fiduciary also shouldn’t have a conflict of interest in working with the individual they represent and shouldn’t receive or seek out additional profit from their role as fiduciary. In the past, financial advisers, brokers and other similar roles hadn’t been considered fiduciaries. That’s where the DOL Fiduciary Rule comes in.

What’s the purpose of the DOL Fiduciary Rule?

The rule puts more oversight into individuals’ best interests when it comes to their investments and investment advice they receive from intermediaries, like advisers and brokers. It does this by expanding the situations in which certain intermediaries are considered to be fiduciaries. This includes those who provide investment advice or recommendations for a fee for ERISA plans and individual retirement accounts. This means these intermediaries can’t receive additional compensation that varies depending on the investment choices made by their clients – and it means they’ll be held more accountable to provide advice and services in the best interest of their clients.

To help enforce the new rule, the IRS will also enforce excise taxes for any prohibited transactions made by intermediaries.

What does the recent IRS ruling for transition relief mean?

The DOL rule will go into effect as of June 9, 2017. But with methods for consistency in enforcing prohibited transactions and excise taxes still being examined, the IRS has issued a relief from the excise taxes under section 4975 of the Internal Revenue Code. Any related reporting obligations also fall under this relief.

Learn more about the full IRS decision on their website, and be sure to subscribe to our blog to receive additional updates on this and other industry news.

Never miss out on important news