An annual tradition, this year’s survey expands on questions and techniques from previous years’ editions. As always, its intention is to help nonprofit leaders understand what others in the space are doing, and why.

Our goal is to arm nonprofit decisionmakers with clear and actionable information that can help them make a positive impact. By understanding peer thought processes, nonprofit organizations can tap into the collective wisdom of the sector to inform their own decision-making.

The survey is open now and will close on August 1, 2024.

To thank you for your participation, 501(c)(3) organizations that fully complete the survey on or before July 5, 2024, will have their names placed in a drawing for a $3,000 donation.

In this hour, Clifton will explore the upcoming 2024 election through the lens of six key policy items: tax, budget, trade, foreign policy, regulation, and immigration.

Topics covered will include:

Join us live on Tuesday, June 18, 2024, at 11:00 a.m. ET, or register to receive a recording of the event.

Click here to register.

About Daniel Clifton

Daniel Clifton leads Strategas’ Washington policy research team, evaluating the financial market implications of policy and political developments. His role includes analyzing tax, trade, infrastructure, healthcare, energy, defense, and other policy initiatives to determine how public policy changes impact the economy and financial markets.

Clifton is currently ranked as the top independent research analyst on Wall Street, across all research verticals. His research on the interaction between policy, elections, and financial markets is widely cited in the media, and he is a frequent guest on CNBC, Bloomberg, and Fox Business. 

Prior to joining Strategas, Clifton was executive director of the American Shareholders Association, a non-partisan, nonprofit organization that analyzes public policy affecting shareholders. He also worked on tax policy issues and has been involved in every major tax policy change throughout the past twenty years. Clifton also served as a senior staff member in two gubernatorial administrations, working on economic and fiscal policy issues. He has degrees in urban planning and public policy.

In this live, one-hour webinar, we’ll discuss a few key takeaways from those quarterly client reviews, with unique insights into how insurance firms are approaching retirement benefits in 2024.

Topics covered will include:

Whether or not your organization currently has a retirement plan advisor, this roundtable discussion will provide an executive summary of the top issues a plan sponsor should be considering, plus an in-depth comparison of what other companies in the insurance industry are doing for their retirement programs and strategies.

Join us live on Thursday, June 27, 2024, at 1:00 p.m. ET.

Click here to register.

Job markets may rise and fall, but attracting and retaining top talent remains essential to the long-term success of any organization. “Employees are our most valuable assets,” says Christopher Whitlow, head of CAPTRUST at Work. “Companies are built on the capital of the people who create the ideas.” 

“When we lose that talent, the effect is far-reaching, from the time and cost of recruiting someone new to the loss of business-critical expertise when longtime workers leave,” says Whitlow.

Employees who feel happy at work tend to be more productive, innovative, and loyal. These effects can lead to happier customers and clients, which can, in turn, lead to greater business success. To keep more employees satisfied and less likely to begin job-searching, a good place to start is with your financial wellness benefits. But these days, financial wellness means more than simply teaching people how to budget.

Wealth-Building is Loyalty-Building

“One of the most powerful ways to attract and retain employees is to generate wealth-building opportunities for them that help keep them grounded in their daily jobs,” says Whitlow. “As an employer, if you’re looking at your workforce, and people are generally not in that space where they’re creating their own wealth, then you might want to think about how you can help them overcome their challenges, help level the playing field for them,” says Whitlow.

This means creating myriad opportunities that work for both your organization and your unique employee population, from tackling student loan debt to assisting highly compensated employees who might not be able to maximize their savings in a qualified retirement plan.

What is key is to understand the unique makeup of your employee base. Each organization is distinct, so benefits should be as well. “To be highly effective and highly efficient, we have to stop picking financial benefits and financial wellness programs off the shelf in a one-size-fits-all approach,” says Whitlow.

Surveys are a great way to learn which benefits employees actually want. To feel confident you’re offering the best financial benefits for a wide range of employees, start by asking them about the financial obstacles they’re currently facing and how they would rate their own financial health or financial confidence.

Ask First

“Don’t be afraid to ask open-ended questions,” says Jennifer Doss, CAPTRUST defined contribution practice leader. “If you let people describe their own challenges and goals, you’ll have more information about their financial situation and their needs.”

To make sure everyone feels represented, Whitlow suggests bringing your survey to your company’s employee resource groups, or ERGs. He suggests asking ERG leaders, “Can you look over these survey questions and tell us how you might change them to be more inclusive?” 

Share the results of your employee surveys in aggregate to ensure anonymity, and share your plans for addressing respondents’ pain points.

Then, ask yourself: Do the benefits you offer today align with what your employees need? Are you offering a variety of benefits for different demographic groups? Where are the gaps between your current benefits and the things employees are asking for?

Knowing who you are as a company can help you curate the right benefit menu. What do you want for your employees? Whitlow calls this your “employee mission statement.”

One important demographic to engage: your older workers. These culture-carrying employees, who are approaching retirement, will be leaving with deep institutional knowledge. It’s crucial their knowledge is passed on. While you get a succession plan in place, keep older workers engaged by adding more skills to their palettes through reverse mentoring or formal educational reimbursement.   

Remember that surveying employees should be an ongoing action. Revisit your surveys on a regular cadence to ensure they’re still aligned with your mission, vision, values, and needs. The right cadence will depend on your organization’s capabilities and goals, but many companies choose to survey employees at least once a year.

Educate and Inform

It’s not worth having superior financial wellness benefits if your employees don’t understand what you’re offering. To close the perception gap, “Show current and prospective employees the benefits awarded to them on an annual basis, including both direct and indirect compensation,” says Doss.

Communicate this information via multiple channels to resonate with different demographic groups. It’s up to employers to make benefits communications available through different media, easily accessible, and available in multiple languages. For instance, you might use infographics, pre-recorded videos, live, virtual meetings, and written articles to explain your benefit package in different ways. You might try incorporating this shift in open enrollment and benefits materials through anecdotes, employee testimonials, and lunch-and-learn sessions. Steer away from a list of features and lean into stories that explain the value. 

Remember that communication channels should run both ways, so give teams plenty of options for asking questions and giving feedback.  

When your benefits include a financial wellness program that addresses the unique challenges and goals of your whole employee population, individual employees are more likely to feel cared for, and to stick around.  

“Your current employees are the culture carriers of your organization,” says Whitlow. “Those employees are the secret to attracting and attaining better candidates who are going do the same thing in the future. It’s a cycle. And it’s through this cycle that your company can find long-term sustainability, because your people, your most valuable asset, are going to attract new people to your business and keep your customers happy.”

This document, Fact Sheet 2024-19, includes 18 questions and answers on topics such as taxation and reporting, repayment, and how SECURE 2.0 specifically updates the disaster rules that have been in place since 2017. Key clarifications in the document include the following:

For more information on federal disaster distributions and loans under SECURE 2.0, please review our Federal Disaster Distributions and Loans infographic and reach out to your CAPTRUST advisor.

A successful investor maximizes gain and minimizes loss. Though there can be no guarantee that any investment strategy will be successful and all investing involves risk, including the possible loss of principal, here are six basic principles that may help you invest more successfully.

Long-Term Compounding Can Help Your Nest Egg Grow

It’s the rolling snowball effect. Put simply, compounding pays you earnings on your reinvested earnings. The longer you leave your money at work for you, the more exciting the numbers get. For example, imagine an investment of $10,000 at an annual rate of return of 8 percent. In 20 years, assuming no withdrawals, your $10,000 investment would grow to $46,610. In 25 years, it would grow to $68,485, a 47 percent gain over the 20-year figure. After 30 years, your account would total $100,627. (Of course, this is a hypothetical example that does not reflect the performance of any specific investment.)

This simple example also assumes that no taxes are paid along the way, so all money stays invested. That would be the case in a tax-deferred individual retirement account or qualified retirement plan. The compounded earnings of deferred tax dollars are the main reason experts recommend fully funding all tax-advantaged retirement accounts and plans available to you.

While you should review your portfolio on a regular basis, the point is that money left alone in an investment offers the potential of a significant return over time. With time on your side, you don’t have to go for investment “home runs” in order to be successful.

Endure Short-Term Pain for Long-Term Gain

Riding out market volatility sounds simple, doesn’t it? But what if you’ve invested $10,000 in the stock market and the price of the stock drops like a stone one day? On paper, you’ve lost a bundle, offsetting the value of compounding you’re trying to achieve. It’s tough to stand pat.

There’s no denying it—the financial marketplace can be volatile. Still, it’s important to remember two things. First, the longer you stay with a diversified portfolio of investments, the more likely you are to reduce your risk and improve your opportunities for gain. Though past performance doesn’t guarantee future results, the long-term direction of the stock market has historically been up. Take your time horizon into account when establishing your investment game plan. For assets you’ll use soon, you may not have the time to wait out the market and should consider investments designed to protect your principal. Conversely, think long-term for goals that are many years away.

Second, during any given period of market or economic turmoil, some asset categories and some individual investments historically have been less volatile than others. Bond price swings, for example, have generally been less dramatic than stock prices. Though diversification alone cannot guarantee a profit or ensure against the possibility of loss, you can minimize your risk somewhat by diversifying your holdings among various classes of assets, as well as different types of assets within each class.

Spread Your Wealth Through Asset Allocation

Asset allocation is the process by which you spread your dollars over several categories of investments, usually referred to as asset classes. The three most common asset classes are stocks, bonds, and cash or cash alternatives such as money market funds. You’ll also see the term “asset classes” used to refer to subcategories, such as aggressive growth stocks, long-term growth stocks, international stocks, government bonds (U.S., state, and local), high-quality corporate bonds, low-quality corporate bonds, and tax-free municipal bonds. A basic asset allocation would likely include at least stocks, bonds (or mutual funds of stocks and bonds), and cash or cash alternatives.

There are two main reasons why asset allocation is important. First, the mix of asset classes you own is a large factor—some say the biggest factor by far—in determining your overall investment portfolio performance. In other words, the basic decision about how to divide your money between stocks, bonds, and cash can be more important than your subsequent choice of specific investments.

Second, by dividing your investment dollars among asset classes that do not respond to the same market forces in the same way at the same time, you can help minimize the effects of market volatility while maximizing your chances of return in the long term. Ideally, if your investments in one class are performing poorly, assets in another class may be doing better. Any gains in the latter can help offset the losses in the former and help minimize their overall impact on your portfolio.

Consider Your Time Horizon in Your Investment Choices

In choosing an asset allocation, you’ll need to consider how quickly you might need to convert an investment into cash without loss of principal (your initial investment). Generally speaking, the sooner you’ll need your money, the wiser it is to keep it in investments whose prices remain relatively stable. You want to avoid a situation, for example, where you need to use money quickly that is tied up in an investment whose price is currently down.

Therefore, your investment choices should take into account how soon you’re planning to use your money. If you’ll need the money within the next one to three years, you may want to consider keeping it in a money market fund or other cash alternative whose aim is to protect your initial investment. Your rate of return may be lower than that possible with more volatile investments such as stocks, but you’ll breathe easier knowing that the principal you invested is relatively safe and quickly available, without concern over market conditions on a given day. Conversely, if you have a long time horizon—for example, if you’re investing for a retirement that’s many years away—you may be able to invest a greater percentage of your assets in something that might have more dramatic price changes but that might also have greater potential for long-term growth.

Note: Before investing in a mutual fund, consider its investment objectives, risks, charges, and expenses, all of which are outlined in the prospectus, available from the fund. Consider the information carefully before investing. Remember that an investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporate or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.

Dollar Cost Averaging: Investing Consistently and Often

Dollar cost averaging is a method of accumulating shares of an investment by purchasing a fixed dollar amount at regularly scheduled intervals over an extended time. When the price is high, your fixed-dollar investment buys less; when prices are low, the same dollar investment will buy more shares. A regular, fixed-dollar investment should result in a lower average price per share than you would get buying a fixed number of shares at each investment interval. A workplace savings plan, such as a 401(k) plan that deducts the same amount from each paycheck and invests it through the plan, is one of the most well-known examples of dollar cost averaging in action.

Remember that, just as with any investment strategy, dollar cost averaging can’t guarantee you a profit or protect you against a loss if the market is declining. To maximize the potential effects of dollar cost averaging, you should also assess your ability to keep investing even when the market is down.

An alternative to dollar cost averaging would be trying to “time the market,” in an effort to predict how the price of the shares will fluctuate in the months ahead so you can make your full investment at the absolute lowest point. However, market timing is generally unprofitable guesswork. The discipline of regular investing is a much more manageable strategy, and it has the added benefit of automating the process.

Buy and Hold, Don’t Buy and Forget

Unless you plan to rely on luck, your portfolio’s long-term success will depend on periodically reviewing it. Maybe economic conditions have changed the prospects for a particular investment or an entire asset class. Also, your circumstances change over time, and your asset allocation will need to reflect those changes. For example, as you get closer to retirement, you might decide to increase your allocation to less volatile investments, or those that can provide a steady stream of income.

Another reason for periodic portfolio review: your various investments will likely appreciate at different rates, which will alter your asset allocation without any action on your part. For example, if you initially decided on an 80 percent to 20 percent mix of stock investments to bond investments, you might find that after several years the total value of your portfolio has become divided 88 percent to 12 percent (conversely, if stocks haven’t done well, you might have a 70-30 ratio of stocks to bonds in this hypothetical example). You need to review your portfolio periodically to see if you need to return to your original allocation.

To rebalance your portfolio, you would buy more of the asset class that’s lower than desired, possibly using some of the proceeds of the asset class that is now larger than you intended. Or you could retain your existing allocation but shift future investments into an asset class that you want to build up over time. But if you don’t review your holdings periodically, you won’t know whether a change is needed. Many people choose a specific date each year to do an annual review.

Source: Broadridge Investor Communication Solutions, Inc.

Flow of 401(k) and 403(b) Cases Continues: More Claims Challenge Underperforming Investments

The flow of cases alleging fiduciary breaches through the overpayment of fees in 401(k) and 403(b) plans continues. Claims challenging the improper retention of underperforming investments are increasing. Following are highlights and language from court decisions to remind plan fiduciaries of the standards against which they are judged.

Goldman Sachs was sued for using its own proprietary funds. Plan fiduciaries won in the district court and the appeals court agreed, with the court saying:

Fiduciaries of the CMFG Life Insurance Company were sued for imprudently retaining the BlackRock LifePath Index Funds, which had allegedly underperformed. Dismissing the case, the judge noted the following:

AllianceBernstein fiduciaries were sued for utilizing their own proprietary target-date funds that consistently underperformed. The case was dismissed, with the judge noting the following:

Recordkeeping and Investment Fees Cases: Process Wins and Attorney’s Fees Clipped

Fiduciaries of Hy-Vee’s 401(k) plan were sued for overpaying for recordkeeping fees. The plan’s fiduciaries followed a diligent process, and the judge found in their favor, noting:

Fiduciaries of the Juniper Networks’ 401(k) plan were sued for, among other things, using managed account services that were more expensive and essentially mimicked the available target-date funds.

The suit was settled for $3 million. The plaintiff’s counsel initially requested $900,000 in legal fees, which the judge rejected. The request was reduced to $750,000, which was also rejected. Ultimately, fees of $375,000 were awarded—approximately double the amount of fees actually incurred.

Similarly, an initial request was made to pay $5,000 to each named class representative, which was denied. A reduced request for $4,000 was also rejected, and the class representatives were awarded $2,000. Reichert vs. Juniper Networks (N.D. Cal. Feb. 2024). Under the settlement, the average participant will receive approximately $370.

Xerox Corporation’s plan fiduciaries were sued for utilizing their own firm’s recordkeeping services and allegedly overcharging plan participants. The case was settled for $4.1 million. The plaintiff’s counsel initially requested $1.37 million in legal fees, 33 percent of the settlement amount. The judge rejected this amount and instead awarded legal fees of 25 percent of the settlement amount—nearly 4.5 times the amount that class counsel spent on the case. Carrigan vs. Xerox Corporation (D. Conn. April 2024). Under the settlement, the average participant will receive approximately $85.

ESG Caution: American Airlines ESG Suit Will Continue

As previously reported, plan participants sued American Airlines for including funds in their 401(k) plan that advance environmental, social, and governance (ESG) causes. The complaint broadly alleged that ESG funds violate ERISA because they support objectives other than plan participants’ financial security in retirement. Initially, it appeared that the challenge may have been to the availability of ESG funds in the plan’s self-directed brokerage window, but that claim has been dropped from the case.

The plaintiffs are challenging the use of BlackRock funds in the plan. Reportedly, BlackRock has embraced ESG factors in its investment approach, and the plaintiffs allege that it is a breach of ERISA’s fiduciary responsibilities to use these investments. Plan fiduciaries filed a motion to dismiss the case, which was denied. So, the case will proceed.

In denying American Airlines’ motion to dismiss, the court acknowledged and appeared to accept the general proposition that ESG investments underperform their non-ESG peers. The judge also noted that ESG investments are not exclusively focused on financial gain to plan participants. Finally, the judge observed that American Airlines’ corporate commitment to ESG initiatives supports the argument that ERISA’s duty of loyalty was breached by the plan fiduciaries. Spence vs. American Airlines, Inc. (N.D. Tex. Feb. 2023).

New DOL Guidance: Expanded Fiduciary Definition and Automatic Portability

Expanded Fiduciary Definition: Undeterred by previous regulations being struck down by the courts, the Department of Labor (DOL) has issued another rule attempting to expand the range of providers who are required to act in their client’s best interests.

It is well settled that ERISA fiduciaries are required to act in plan participants’ best interests. However, ERISA applies only to plan assets. Once assets leave a plan, participants are no longer protected. Therefore, without additional regulation, individuals like stockbrokers and insurance agents can act in their own or their company’s best interests rather than in their clients’ interests.

The DOL’s new fiduciary rule is intended to protect retirement savers as and after assets leave retirement plans. It applies to those who provide investment advice for a fee as a regular part of their business in circumstances where the client believes the advice is tailored to their situation and is in their best interests. Alternatively, providers can also acknowledge that they are acting as a fiduciary under ERISA. The new rule is scheduled to take effect on September 23, 2024. However, litigation is expected.

Automatic Portability: The SECURE 2.0 Act enabled automatic portability services that cause a terminating plan participant’s account to follow the participant to a new employer’s plan. This can be used for small account balances of $7,000 or less. Both the terminating employer and the new employer must be enrolled in the portability service. Transfer between plans is a three-step process.

  1. The distributing plan initiates a mandatory rollover distribution into an individual retirement account (IRA) for the participant.
  2. The default IRA holds the rolled-over assets, pending direction by the portability provider to move the assets to the new employer’s plan. The portability provider tracks default IRA accounts and the accounts in potential receiving plans for matches.
  3. The receiving plan receives the assets from the default IRA when the owner is matched by the portability provider with an account at a participating plan.

For plans that participate in an automatic portability program, there are some responsibilities:

Divorced Couple’s Notarized Agreement Ignored: Plan Documents Prevail

Diann and Boyd Badali were divorced. Their divorce documents did not address Boyd’s employer-provided life insurance. Boyd remarried, then died 15 months after his remarriage. Following his death, both Diann and Renata Badali, Boyd’s wife at the time of his death, claimed his life insurance proceeds.

Before Boyd remarried, he and Diann had entered into a signed and notarized agreement to “update and clarify their divorce decree.” The agreement provided that Boyd would “keep Diann as beneficiary on the employer-provided life insurance policy.”

The plan document provided that, if there were no beneficiary designation, the death benefit would go to the surviving spouse. No beneficiary designation could be located, so Renata Badali, Boyd’s wife at the time of his death, was awarded the death benefits.

The court noted that equitable considerations like Boyd’s intent, as included in the notarized agreement, cannot come into play in an ERISA-covered plan when the plan language is clear, as it was in this situation. Metropolitan Life Insurance Company vs. Badali (D. Utah Feb 2024).

Valuation discounts, which are commonly used for business appraisals for private investment partnerships, minority interests in limited liability companies (LLCs), and family limited partnerships (FLPs), are immensely beneficial for gift and estate tax savings. In fact, applying discounts can reduce valuations for estate tax purposes while simultaneously allowing you to gift your children a percentage of the business, LLC, trust, or FLP at a reduced rate.

It’s important to know that the standard of valuation for gift and estate tax purposes is defined as fair market value. This is the price at which the business, LLC, trust, or FLP would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of relevant facts. Fair market value is the sale price that a hypothetical buyer and seller would reach, not the price that the actual owner would agree to or the price an actual buyer might be willing to pay.

Part of Every Gift and Estate Tax Savings Strategy

To be eligible to receive valuation discounts, an individual may choose to split up ownership of their business, LLC, trust, or FLP, especially for family-owned or closely held assets. Although it is best practice to craft an estate strategy based on the assets you own during your lifetime, these same valuation discounts would also apply to someone’s estate. For instance, in the event that a person passes away while still owning a business and leaves all of their assets to their six children, all six children would be entitled to many of these discounts.

Common Valuation Discounts

The most common valuation discounts are those for lack of marketability, lack of control, minority share, and future interest discounts. These discounts can range from 10 to 45 percent, depending on several factors.

Lack of marketability: This refers to the discount that can be applied when valuing a company that is not publicly traded. Determining lack of marketability often means calculating the value of a closely held businesses or of restricted shares of public companies. The idea is that a discount exists between a stock that is publicly traded (and therefore has a market) and a privately held stock, which often has little if any marketplace. In other words, because a privately held stock does not have clear market value (the way that a publicly traded stock does), it deserves a discount.

Lack of control: This refers to a reduction in a company’s share value due to a shareholder’s lack of ability to exercise control over the company. In this circumstance, a business interest is considered to be worth less than a controlling interest in a company, since business decisions, like determining compensation, setting policies, deciding to sell or liquidate, and declaring dividends, are all out of the shareholder’s hands. Thus, when noncontrolling or nonvoting shares are valued for a private company, a discount for lack of control is often applied.

Valuation Discounts Sidebar

Minority share: You can obtain minority interest discounts by making each gift of an interest in the business small enough to qualify for the minority share discount. The minority share discount, also called a minority interest discount, reflects the idea that a partial ownership interest may be worth less than its pro rata (proportional) share of the total business. For example, ownership of a 30 percent share in the business may be worth less than 30 percent of the entire company value. This is because a 30 percent ownership may be limited as to the scope of its control over critical aspects of the business, such as management, financial or accounting oversight, regulatory or legal issues, and even hiring and firing decisions.

Future interest: Future interest discounts are common when setting up trusts like qualified personal residence trusts that entitle the beneficiary to the asset a specified number of years in the future. Since it is a gift of future interest, the asset can be discounted based on an assumed interest rate of growth.

Determining the Discount

Individuals will need a qualified business appraiser or skilled valuation analyst to determine an appropriate discount based on an analysis of the assets held by the entity and their condition, the size of the interest being gifted, and restrictions outlined in the operating agreement.

Many factors enter into a business valuation, and specific facts surrounding the transfer will weigh heavily into the discount. These restrictions often significantly limit the power of minority interest holders to vote, participate in management, replace managers, force distributions, liquidate assets, and transfer or sell their ownership interest.

If individuals are making gifts over a period of years, experts recommend undertaking a valuation with each gift, as closely to the time of transfer as possible.

Current Tax Law and Valuation Discounts

Under the current tax law, individuals can give $13.61 million per person or $27.22 million per married couple in gifts over the course of their lifetimes without having to pay gift taxes. However, this provision is set to expire at the end of 2025. Based on the many tax proposals currently being discussed, it is possible the threshold may be reduced to a lower number even sooner.

To take advantage of possible grandfathering for transactions completed before the effective date of any proposed regulations, individuals already engaged in transfer planning with family limited partnerships and LLCs should complete the process in a timely manner, while those seeking to rely on existing laws should begin planning immediately.

Previous Definitions

The new definition of an investment fiduciary replaces a five-part definition from 1975 which said fiduciary advice needed to:

In the new rule, these provisions have been reworked. This broadens the impact of the new rule to include many transactions that were not covered under the 1975 guidance, such as rollovers from workplace retirement plans to individual retirement accounts (IRAs), recommendations regarding many commonly purchased retirement annuities, and recommendations to plan fiduciaries.

How This Impacts CAPTRUST Clients

CAPTRUST already serves as a fiduciary when providing investment advice to retirement plan sponsors and participants. Therefore, this rule does not change how CAPTRUST interacts with its clients, nor does it change the services CAPTRUST provides to retirement plan sponsors or retirement plan participants.

The New Fiduciary Rule

The 476-page Retirement Security Rule defines an investment fiduciary under the Employee Retirement Income Security Act (ERISA) as a person who renders investment advice for a fee or other compensation, direct or indirect, under one of the following contexts:

1. The person either directly or indirectly (e.g., through or together with any affiliate) makes professional investment recommendations to investors on a regular basis as part of their business, and the recommendation is made under circumstances that would indicate to a reasonable investor that the recommendation:

a. is based on review of the retirement investor’s particular needs or individual circumstances;

b. reflects the application of professional or expert judgment to the retirement investor’s particular needs or individual circumstances; and

c. may be relied on by the retirement investor as intended to advance the retirement investor’s best interest; or

2. The person represents or acknowledges that they are acting as a fiduciary under Title I of ERISA, Title II of ERISA, or both, with respect to the recommendation.

Given that the rule defines investment advice fiduciaries, it generally applies to service providers like recordkeepers, financial advisors, and investment managers, as opposed to retirement plan sponsors.

One new element of the final rule is that communications from employees of the plan sponsor—even if they could be interpreted as investment recommendations—would not cause employees to be defined as investment advice fiduciaries so long as those employees are not investment professionals.

The final rule also contains a provision that investment education can occur without subjecting anyone to ERISA fiduciary status.

Plan sponsors should be aware that service providers who currently provide investment recommendations, including IRA rollover advice, to their plans or plan participants could be subject to the new rule. Additionally, service providers that currently deliver education to participants may need to reevaluate their processes, services, and product offerings under this new rule.

For more information about this rule or other recent legislative and regulatory changes that may impact retirement plan sponsors, contact a CAPTRUST financial advisor.

Originally, the DOL had intended to gather the necessary information for this database from IRS Form 8955-SSA, since that form already captures the data needed. However, the Internal Revenue Service (IRS) does not believe it is allowed to share form 8955-SSA data with the DOL. 

In the proposed procedure, the DOL places the burden of data collection and reporting on plan administrators. Administrators would be required to provide necessary data to the DOL via Form 5500s each year, perhaps starting with the 2023 5500s that are due in 2024. Because, for most plans, the collection of 5500 data is almost always outsourced to a third-party administrator (TPA) or bundled recordkeeper, these will be the entities that would presumably provide required data to the DOL via the 5500s of the individual plan sponsors.

The DOL is asking plans to provide the following for vested separated participants: 

Plans must also indicate if a participant has been unresponsive to contact. 

At first glance, the reliance on voluntary data collection from plan administrators via a highly segmented process such as that that exists around Form 5500s appears to be administratively difficult. The comment period for this proposal is open until June 17, 2024, and is expected to receive pushback from many organizations in the retirement plan industry.