The Department of Labor and its new fiduciary rule is creating excitement in the news media. Maybe you have heard and wonder how this change affects District retirement plans. There is no effect!
These new rules apply only to ERISA plans and transfers of money to and among Individual Retirement Accounts (IRAs). Government plans are specifically exempt. Government plans can NEVER be subject to ERISA rules!
Why all the fuss? When the rule applies, it creates fiduciary liability for plan and participant advisors. Advisors are only allowed to receive compensation if certain disclosures and procedures are followed. This is causing much angst in the retirement industry since compliance is very expensive and the requirements are not only burdensome but not practical. There are concerns many advisors will no longer offer services to people with ERISA plans or IRAs because of increased personal liability and confusion about the proper way to comply with the rules.
But beware, there is no confusion about if this new rule applies to District retirement plans. Uninformed people can perpetuate confusion and create unnecessary concern when there should be none. Individuals may even hope to personally benefit by creating this confusion. Just remember, government entities including public school districts are not affected by this rule. Government 403(b), 457, and 401(a) plans continue “business as usual.”
What is affected by the new rule is rollovers by participants from 403(b), 457 and 401(a) plans to IRAs when they are usually no longer employed by the District. Many people move money from their employer plan to their own individual IRA when they leave employment – whether changing jobs or retiring. Advisors assisting individuals with these decisions must comply with new requirements in 2017/2018 which will include disclosing any compensation they receive from the vendors of the product(s) they recommend and any other potential conflicts of interest they may have with the client. But again, this usually occurs when the individuals are no longer employed by you!*
So no worries, there are no changes needed for the District’s retirement plans due to the DOL fiduciary rule!
*Some 403(b) and 401(a) plans allow for inservice distributions at age 59 ½ which can be rolled to IRA accounts.
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