Last month we brought you DOL Regulations, Part I: Who is a Fiduciary? It discussed the DOL’s latest attempt at redefining ERISA’s definition of “fiduciary” and who the proposed regulation identifies as a fiduciary. Now we will look at who is not a fiduciary.

The Carve-Outs

The DOL carved out seven types of advice that will not cause the person who provides certain types of advice to be treated as a fiduciary. There are a total of seven carve-outs, as follows, each with its own rigorous conditions and requirements:  September 2015

Recently, the DOL released its second attempt at redefining ERISA’s definition of “fiduciary” for the era of participant-directed retirement savings. The new, proposed regulation is significantly different than ERISA’s existing definition, broadening both the group of individuals and firms considered fiduciaries, as well as expanding the retirement savings vehicles covered by the new fiduciary standards to include IRAs. Advisers, consultants and brokers are most significantly impacted by the proposed regulation as drafted, but plan sponsors can also expect changes: advisers and consultants previously not considered fiduciaries to date may now become fiduciaries, and employee investment education programs may need to be revised. The regulation is in proposed form right now and may change before the time it becomes final. This article introduces a few of the changes most applicable to plan sponsors.  August 2015

In May, the Supreme Court of the United States (the “Supreme Court”) published its long-awaited opinion in Tibble v. Edison International. The Supreme Court held that an ERISA fiduciary has a duty to continuously monitor the prudence of investment options offered under a qualified retirement plan, separate and distinct from their duty to prudently initially select investment options. While the Supreme Court’s brief opinion clearly dictates a fiduciary’s responsibility under ERISA to review investment options on a continuing basis, it did not express an opinion on the scope of such a review.  July 2015

Ball of Confusion (That’s What the World is Today)

The Temptations had a hit single by this title in 1970. Forty five years ago they were commenting on the state of the world at the time. It appears their observations are still relevant today. Hot wars and Cold wars, nuclear proliferation, social unrest, political corruption and economic disruption were daily headline themes confronting and confounding investors. The more things change the more they stay the same.  Newsletter 6-30-2015

There has been much publicity about active managers’ inability to beat their benchmarks over the years. However, upon closer inspection, funds that have remained truly active have shown ability to add value above their benchmarks. A study conducted by Yale professors Martijn Cremers and Antti Petajisto set out to find variables that could help predict fund performance. One variable was active share, which measures a fund’s percentage of holdings that differs from the benchmark index. For example, an index fund has an active share of zero percent and an active fund with no benchmark overlap has an active share of 100 percent. They found that active share is predictive of excess returns. Their study showed that funds with the highest active share and moderate tracking error outperformed by about 1.5 percent per year on average while funds with the lowest active share underperformed by a similar amount.¹  May 2015

Investment returns in 2014 were modest and mixed and it appears 2015 may also deliver mixed returns but with a different cast than 2014. US stocks did reasonably well, though most of the returns were concentrated in larger capitalization stocks. The majority of the gains were delivered by a relatively few companies and a relatively few industries. Apple Computer and Biogen helped the larger capitalization indices such as the S&P 500 and the NASDAQ, but not so much Exxon-Mobil or Caterpillar. Smaller companies barely delivered middling single digit returns. This year’s modest mix appears to be changing. Newsletter 3-31-2015

On February 2, 2015, President Barack Obama released the Fiscal Year 2016 Budget of the U.S. Government that reflects a focus on raising overall government revenues. The prospective increase in revenue would create a range of new tax benefit programs, many of which would affect retirement savings for as many as 30 million Americans. According to the White House, as many as 78 million working Americans do not have a retirement savings plan at work and less than 10% of workers without workplace retirement plans contribute to an outside savings vehicle. The Obama administration believes, according to the budget, “The Nation needs to do more to help families save and give them better choices to reach a secure retirement.”¹ The budget laid out six key proposals that may affect retirement savings.  April 2015

Traditionally safe harbor contributions have been rather stringent in the sense that once adopted, there seemed to be little leeway allowing suspension or discontinuance. In 2014, the IRS issued new, final regulations of the requirements that need to be met to reduce or suspend a safe harbor contribution during a plan year. The new regulations are effective for plan years beginning on or after January 1, 2015. If the plan year is the calendar year, the new regulations apply now.

Under the new regulations, a safe harbor match or safe harbor non-elective contribution may be suspended or reduced midyear in two instances:  March 2015

Since June, oil prices have fallen to a six-year low, down over 50% from when Brent crude hit a 2014 high of $115 a barrel. Prices began their swoon mid-year as global supply outstripped global demand. The demand side of the equation weakened as a result of the economic woes of Europe and Asia, increased fuel efficiency and a trend toward alternative fuel sources. On the supply side, the largest variable has been increased U.S. production, up about 50% since 2008 and largely driven by a boom in shale production. Oil prices tumbled further in late November when the Organization of Petroleum Exporting Countries (OPEC) members decided not to curb production. Many observers believe OPEC has an agenda to drive marginal U.S. shale producers out of business by keeping prices low.  February 2015