This is 59^th article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles also cover the DOL’s FAQs interpreting the regulation and exemptions and related developments in the securities laws.

I continue to be asked about which “plans” are covered by the new DOL fiduciary rules, and which are not. It’s more complicated than you might think, in the sense that some of the covered plans may surprise you. Fortunately, three of our attorneys, Bruce Ashton, Elise Norcini and Josh Waldbeser have written an article that explains “what’s in and what’s out” in terms of the plans and other investment accounts that are covered by the fiduciary rule (and therefore by the prohibited transaction exemptions). A full reprint of their June 7, 2017 article follows:

“With the June 9 applicability date of the DOL Fiduciary Rule (Rule) just a few days away, there may still be confusion about exactly which plans and other arrangements are subject to the Rule. Some plans are not subject to the Rule, and some arrangements that are not actually IRAs are treated as if they were IRAs and therefore subject to the Rule. So, how are “plans” and “IRAs” defined?

The purpose of this Alert is simple – to describe which plans and arrangements are covered, and which are not. Below is a summary, followed by a brief discussion for those who want more explanation.

SUBJECT to the Rule – Treated as Plans

• 401(k) plans – all types

• Individual (“solo”) 401(k)s

• 403(b) plans (other than governmental and non-electing church plans, and payroll deduction only 403(b)s)

• Profit-sharing plans

• ESOPs, including KSOPs

• Money purchase plans (other than governmental and non-electing church plans)

• Defined benefit plans (other than governmental and non-electing church plans)

• SEPs, including SARSEPs

• SIMPLEs

• Keogh plans

SUBJECT to the Rule – Treated as IRAs

• IRAs – all types

• Payroll deduction only IRAs

• Individual retirement annuities

• Health savings accounts (HSAs)

• Archer medical savings accounts (MSAs)

• Coverdell education savings accounts (ESAs)

NOT SUBJECT to the Rule

• Governmental plans – all types

• Payroll deduction only 403(b)s

• 457 plans – both 457(b) and 457(f)

• Non-qualified equity compensation, such as stock options and restricted stock units

• Non-electing church plans – all types

• Non-qualified deferred compensation plans

• Rabbi trusts

• 529 plans

• Uniform Gifts/Transfers to Minors Accounts

Covered Plans

Under the Rule, covered plans include (1) all “plans” as ERISA defines the term, and (2) all plans that are tax-qualified under Section 401(a) of the Internal Revenue Code (Code). Many plans fall under both categories, but only one is required. To illustrate:

• 401(k) plans (benefiting employees of an employer) are both ERISA plans and qualified plans. The same is true of profit-sharing plans, ESOPs, and most money purchase and defined benefit plans, unless they fall into one of the excluded categories from our chart (more on excluded categories later).

• Individual 401(k) plans (benefiting a self-employed individual) are not ERISA plans, but are qualified.

• SEPs and SIMPLEs are ERISA plans, even though they are IRA-based, and thus are not qualified plans. This is because both SEPs and SIMPLEs require employer contributions. 403(b) plans that are subject to ERISA are also covered – this includes 403(b) plans sponsored by private tax-exempt entities that are not churches.

Covered IRAs

Covered IRAs include all arrangements that are not “plans” under the above definition, but are treated as plans under the Code’s excise tax rules – this includes both “actual” IRAs and other similar arrangements like HSAs (an HSA may also be part of an ERISA plan, although this is the exception).

Also, under ERISA, employers are permitted to take payroll deductions from employees and remit them to IRAs, without being deemed to sponsor a plan. In these cases, the employer can have only limited involvement and cannot make employer contributions. These “payroll deduction only” IRAs are subject to the Rule as IRAs, but are not plans.

Excluded Plans and Arrangements

The Rule does not affect arrangements that are neither plans nor IRAs, as defined above.  Here are some specifics:

• Governmental Plans. Governmental plans may be qualified under the Code but are not subject to the Code’s excise tax provisions, and are entirely excluded from ERISA. This means the Rule does not apply to investment advice given to governmental plans, though similar state laws may apply.

• Non-Electing Church Plans. Churches and certain affiliated tax-exempt employers may sponsor “church plans.” Church plans are not subject to ERISA unless the plan sponsor affirmatively elects ERISA coverage. And, even though “non-electing” (non-ERISA) church plans may be qualified, like governmental plans they are not subject to the Code’s excise tax provisions. Thus, the Rule likewise has no application to non-electing church plans. (Though beyond the scope of this Alert, one way advisers can check on a plan’s “ERISA status” is to see whether the plan has filed Forms 5500 with the DOL. If so, it is subject to ERISA.)

• Payroll Deduction Only 403(b)s. Tax-exempt employers that take payroll deductions from employees and remit them to 403(b) tax-deferred annuities, but otherwise have limited involvement and do not make employer contributions, are not treated as sponsoring a plan subject to ERISA. Also, 403(b) plans are not subject to the Code’s prohibited transaction excise taxes. Thus, payroll deduction only 403(b)s are not subject to the Rule at all.

• Non-Qualified Deferred Compensation Plans. “Top hat” deferred compensation plans that cover only a select group of management or highly compensated employees are not treated as plans so long as they are “unfunded” (i.e., to the extent assets are set aside, they are in a “rabbi trust” or similar vehicle where the assets are subject to the employer’s creditors). These plans are not subject to ERISA or to the Code’s excise tax provisions, and the Rule does not affect them. The same is true for non-qualified equity-based compensation arrangements.

• 457 Plans. 457(b) and 457(f) plans are non-qualified deferred compensation plans that can be sponsored by governmental and private tax-exempt employers. 457 plans of tax-exempt entities are excluded from ERISA as either “top hat” or non-electing church plans and are not subject to the Rule. “Non-top hat” 457 plans of a private sector employer could be subject to ERISA and the Rule, though this is rare.

• Other Arrangements. Other arrangements such as 529 plans and UGMA/UTMA accounts are neither plans nor IRAs. They may, however, be similar to certain arrangements that are subject to the Rule. For example, 529 plans (excluded) and Coverdell ESAs (covered) are both used for college savings. Thus, advisors and financial institutions will need to be careful to differentiate between them.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Drinker Biddle & Reath.

Part 1- Interesting Angles on DOL’s Fiduciary Rule #1

Part 2 - Best Interest Standard of Care: Interesting Angles on the DOL’s Fiduciary Rule #2 

Part 3 - Hidden Preamble Observations: Interesting Angles on the DOL’s Fiduciary Rule #3

Part 4 - TV Stock Tips and Fiduciary Advice: Interesting Angles on DOL’s Fiduciary #4

Part 5 - Level Fee Fiduciary Exemption: Interesting Angles on DOL’s Fiduciary Rule #5

Part 6 - Fiduciary Regulation And The Exemptions: Interesting Angles on the DOL’s Fiduciary Rule #6

Part 7 - Fiduciary Regulations And The Exemptions : Interesting Angles on the DOL’s Fiduciary Rule #7

Part 8 - Designated Investment Alternatives: Interesting Angles on the DOL’s Fiduciary Rule #8

Part 9 - Best Interest Standard and the Prudent Man Rule: Interesting Angles on the DOL’s Fiduciary Rule #9

Part 10 - FINRA Regulatory Notice: Interesting Angles on the DOL’s Fiduciary Rule #10

Part 11-ERISA and the Internal Revenue Code: Interesting Angles on the DOL’s Fiduciary Rule #11

Part 12- Potential Prohibited Transactions: Interesting Angles on the DOL’s Fiduciary Rule #12

Part 13-Investment Policies: Interesting Angles on the DOL’s Fiduciary Rule #13

Part 14- Investment Suggestions: Interesting Angles on the DOL’s Fiduciary Rule #14

Part 15- Best Interest Contract Exemption: Interesting Angles on the DOL’s Fiduciary Rule #15

Part 16 - Adviser Recommendations: Interesting Angles on DOL’s Fiduciary Rule #16

Part 17 - Level Fee Fiduciary: Interesting Angles on DOL’s Fiduciary Rule #17

Part 18- Best Interest Contract Exemption and IRA Advisor Compensation: Interesting Angles on the DOL’s Fiduciary Rule #18

Part 19- Interesting Angles on the DOL’s Fiduciary Rule #19: Advisors' Use of "Hire Me" Practices.

Part 20- Three Parts of "Best Interest Standard of Care": Interesting Angles on the DOL’s Fiduciary Rule #20

Part 21- Retirement Plan Documentation and Prudent Recommendation: Interesting Angles on the DOL’s Fiduciary Rule #21

Part 22-Banks and Prohibited Transactions: Interesting Angles on the DOL’s Fiduciary Rule #22

Part 23-Prohibited Transactions: IRA and RIA Qualified Money: Interesting Angles on the DOL’s Fiduciary Rule #23

Part 24 - Differential Compensation Based on Neutral Factors: Interesting Angles on DOL’s Fiduciary Rule #24

Part 25-Reasonable Compensation Versus Neutral Factors: Interesting Angles on the DOL’s Fiduciary Rule #25

Part 26- Interesting Angles on the DOL’s Fiduciary Rule #26- Reasonable Compensation for IRAs: When and How Long?

Part 27 - Definition of Compensation: Interesting Angles on DOL’s Fiduciary Rule #27

Part 28 - What About Rollovers that Aren’t Recommended?: Interesting Angles on the DOL’s Fiduciary Rule #28

Part 29- Capturing Rollovers: What Information is Needed?: Interesting Angles on the DOL’s Fiduciary Rule #29

Part 30- Three Kinds of Level Fee Fiduciaries . . . and What’s A “Level Fee?”: Interesting Angles on the DOL’s Fiduciary Rule #30

Part 31 - “Un-levelizing” Level Fee Fiduciaries: Interesting Angles on the DOL’s Fiduciary Rule #31

Part 32 - What “Level Fee Fiduciary” Means for Rollover Advice: Interesting Angles on the DOL’s Fiduciary Rule #32

Part 33- Discretionary Management, Rollovers and BICE: Interesting Angles on the DOL’s Fiduciary Rule #33

Part 34- Seminar Can Be Fiduciary Act: Interesting Angles on DOL’s Fiduciary Rule #34

Part 35- Presidential Memorandum on Fiduciary Rule: Interesting Angles on the DOL’s Fiduciary Rule #35

Part 36 -Retirement Advice and the SEC: Interesting Angles on the DOL’s Fiduciary Rule #36

Part 37 - SEC Retirement-Targeted Examinations: Interesting Angles on the DOL’s Fiduciary Rule #37

Part 38- SEC Examinations of RIAs and Broker-Dealers under the ReTIRE Initiative: Interesting Angles on the DOL’s Fiduciary Rule #38

Part 39- FINRA Regulatory Notice 13-45: Guidance on Distributions and Rollovers: Interesting Angles on the DOL’s Fiduciary Rule #39

Part 40 - New Rule, Old Rule - What Should Advisers Do Now?: Interesting Angles on the DOL’s Fiduciary Rule #40

Part 41 - While We Wait: The Current Fiduciary Rule and Annuities: Interesting Angles on DOL’s Fiduciary Rule #41

Part 42 - Rollovers under DOL’s Final Rule: Interesting Angles on DOL’s Fiduciary Rule #42

Part 43 - BICE Transition: More Than the Eye Can See - Interesting Angles on DOL’s Fiduciary Rule #43

Part 44 - Basic Structure of Fiduciary Package (June 9): Interesting Angles on DOL’s Fiduciary Rule #44

Part 45 - DOL Fiduciary “Package”: Basics on the Prohibited Transaction Exemptions: Interesting Angles on the DOL’s Fiduciary Rule #45

Part 46 - How Does an Adviser Know How to Satisfy the Best Interest Standard?: Interesting Angles on the DOL’s Fiduciary Rule #46

Part 47- “Real” Requirements of Fiduciary Rule: Interesting Angles on DOL’s Fiduciary Rule #47

Part 48- The Last Word: The Fiduciary Rule Applies on June 9- Interesting Angles on the DOL’s Fiduciary Rule #48

Part 49- The Requirement to Disclose Fiduciary Status: Interesting Angles on the DOL’s Fiduciary Rule #49

Part 50- Fourth Impartial Conduct Standard: Interesting Angles on DOL’s Fiduciary Rule #50

Part 51- Recommendations to Transfer IRAs: Interesting Angles on the DOL’s Fiduciary Rule #51

Part 52 - The Fiduciary Rule and Exemptions: How Long Will Our Transition Be?: Interesting Angles on the DOL’s Fiduciary Rule #52

Part 53 - Fiduciary Rule and Discretionary Investment Management: Interesting Angles on DOL’s Fiduciary Rule #53

Part 54 - The DOL’s RFI and Possible changes to BICE: Interesting Angles on the DOL’s Fiduciary Rule #54

Part 55- DOL’s RFI and Recommendation of Annuities- Interesting Angles on DOL’s Fiduciary Rule #55

Part 56-Recommendations of Contributions as Fiduciary Advice: Interesting Angles on the DOL’s Fiduciary Rule #56

Part 57- Relief from 408(b)(2) Requirement on Change Notice: Interesting Angles on the DOL’s Fiduciary Rule #57

Part 58- Recommendations to Contribute to a Plan or IRA- Interesting Angles on the DOL’s Fiduciary Rule #58

Part 60- What the Tibble Decision Means to Advisers: Interesting Angles on the DOL’s Fiduciary Rule #60

Part 61- The Fiduciary Rule, Distributions and Rollovers: Interesting Angles on the DOL’s Fiduciary Rule #61

Part 62 - Is It Possible To Be An Advisor Without Being A Fiduciary? - Interesting Angles on the DOL’s Fiduciary Rule #62

Part 63-Policies and Procedures: The Fourth BICE Requirement - Interesting Angles on the DOL’s Fiduciary Rule #63

Part 64 -What Does the Best Interest Standard of Care Require?-Interesting Angles on the DOL’s Fiduciary Rule #64

Part 65- Unexpected Consequences of Fiduciary Rule - Interesting Angles on the DOL’s Fiduciary Rule #65

Part 66- Concerns About 408(b)(2) Disclosures: Interesting Angles on the DOL’s Fiduciary Rule #66

Part 67- From the DOL to the SEC - Interesting Angles on the DOL’s Fiduciary Rule #67

Part 68-Recommendations of Distributions - Interesting Angles on the DOL’s Fiduciary Rule #68

Part 69- Compensation Risks for Broker-Dealers and RIAs: Interesting Angles on the DOL’s Fiduciary Rule #69

Part 70-The Fiduciary Rule and Recordkeeper Services: Interesting Angles on the DOL’s Fiduciary Rule #70

Part 71- Recordkeepers and Financial Wellness Programs: Interesting Angles on the DOL’s Fiduciary Rule #71

Part 72-The "Wholesaler" Exception: Interesting Angles on the DOL’s Fiduciary Rule #72

Part 73- Recordkeeper Investment Support for Plan Sponsors: Interesting Angles on the DOL’s Fiduciary Rule #73

Part 74 -One More Fiduciary Issue for Recordkeepers: Interesting Angles on the DOL’s Fiduciary Rule #74

Part 75 - The Fiduciary Rule: Mistaken Beliefs-Interesting Angles on the DOL’s Fiduciary Rule #75

Part 76 - Discretionary Management of IRAs: Prohibited Transaction Issues for RIAs- Interesting Angles on the DOL’s Fiduciary Rule #76

Part 77 - The Fiduciary Rule: Mistaken Beliefs (#2): Interesting Angles on the DOL’s Fiduciary Rule #77

Part 78 - The Fiduciary Rule: Mistaken Beliefs (#3): Interesting Angles on the DOL’s Fiduciary Rule #78

Part 79 - The Fiduciary Rule: Mistaken Beliefs (#4)- Interesting Angles on the DOL’s Fiduciary Rule #79

Part 80 - Enforceable During Transition?: Interesting Angles on the DOL’s Fiduciary Rule #80

Part 81 - The Fiduciary Rule Prohibits Commissions...  or Not (Myth #6): Interesting Angles on the DOL’s Fiduciary Rule #81

Part 82 - Undisclosed (and Disclosed) 12b-1 Fees: The Different Views of the SEC and DOL - Interesting Angles on the DOL’s Fiduciary Rule #82

Part 83 - Part 2 of Undisclosed (and Disclosed) 12b-1 Fees: Interesting Angles on the DOL’s Fiduciary Rule #83

Part 84- What Does the 5th Circuit Decision Mean for Rollover Recommendations?: Interesting Angles on the DOL’s Fiduciary Rule #84

Part 85 -The Fiduciary Rule: What’s Next (Part 1)? : Interesting Angles on the DOL’s Fiduciary Rule #85

Part 86- The Fiduciary Rule: What’s Next (Part 2)?: Interesting Angles on the DOL’s Fiduciary Rule #86

Part 87 - The Fiduciary Rule: What’s Next (Part 3)?: Interesting Angles on the DOL’s Fiduciary Rule #87

Part 88 -The Fiduciary Rule: What’s Next (Part 4)? : Interesting Angles on the DOL’s Fiduciary Rule #88

Part 89 - The 5th Circuit Decision, Prohibited Transactions, and New Non-Enforcement Policies: Interesting Angles on the DOL’s Fiduciary Rule #89

Part 90 - Parallels Between the SEC Regulation Best Interest and the DOL Best Interest Contract Exemption (Part 1): Interesting Angles on the DOL’s Fiduciary Rule #90

Part 91- Parallels Between the SEC Regulation Best Interest and the DOL Best Interest Contract Exemption (Part 2): Interesting Angles on the DOL’s Fiduciary Rule #91

Part 92 - SEC Proposed Reg BI and Recommendations of Rollovers (Part 1): Interesting Angles on the DOL’s Fiduciary Rule #92

Part 93 - SEC Proposed Reg BI and Recommendations of Rollovers (Part 2): Interesting Angles on the DOL’s Fiduciary Rule #93

Part 94 - SEC Proposed Reg BI and Recommendations of Rollovers (Part 3) : Interesting Angles on the DOL’s Fiduciary Rule #94

Part 95 - Regulation Best Interest Recommendations by Broker-Dealers: Part 1- Interesting Angles on the DOL’s Fiduciary Rule #95

Part 96 - Regulation Best Interest Recommendations by Broker-Dealers: Part 2- Interesting Angles on the DOL’s Fiduciary Rule #96

Part 97 – Regulation Best Interest Recommendations by Broker-Dealers: Part 3 - Interesting Angles on the DOL’s Fiduciary Rule #97

Part 98 – Regulation Best Interest: Consideration of Cost and Compensation- Interesting Angles on the DOL’s Fiduciary Rule #98

Part 99 – Investment Advisers and the SEC's Interpretation of Their Duties: Interesting Angles on the DOL’s Fiduciary Rule #99

Part 100 - Investment Advisers and the SEC’s Interpretation of Their Duties: Part II- Interesting Angles on the DOL’s Fiduciary Rule #100