Experts in Personalized Retirement Plan Design & Administration

SEC Gets In On 401(k) Fiduciary Rule Compliance

While it does not address the external fees intermediaries may impose, it does provide a Guidance Update (December 19, 2016) addressing certain procedural issues that have arisen in connection with the so-called fiduciary rules adopted by the Department of Labor (DOL).

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What does the Update focus on? SEC

  • Disclosure issues and certain procedural requirements with offering variations in Fund sales loads and new Fund share classes
  • Certain administrative procedures that will assist in streamlining the review of disclosures

What is the goal?

  • To make it easier for mutual funds to create and administer compensation arrangements tailored to comply with the fiduciary rules

Key Takeaways:

“…several brokerage firms are establishing their own breakpoint for sales loads and only offering mutual funds that comply with their breakpoint schedule. Other firms have asked that mutual funds offer a share class (often designated as “T Shares”) that strip away all forms of sales compensation, so the firm can charge a direct account or administrative fee on their client’s retirement assets.”

Rule 22d-1 requires a mutual fund to amend its registration statement to disclose any new variations in its sales loads, and the fund must file any such amendment in accordance with Rule 485(a) under the Securities Act.

Under the Guidance Update, the SEC staff will “not object if lengthy sales load variation disclosure for multiple intermediaries is included in an appendix to the statutory prospectus.”

The Guidance Update “encourages mutual funds to request selective review and template filing relief  in connection with filings made to comply with the Fiduciary Rules. A fund complex may combine template filing relief with selective review to streamline the amendment process as much as possible.”

The Guidance Update “does not provide any assurances that adopting intermediary-specific sales load breakpoints or offering T Shares will satisfy the requirements of the fiduciary rules. Moreover, the Guidance Update does not address the question of what external fees intermediaries may impose.”

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