1Q17: Exploring the Myth That the Fiduciary Rule Favors Passive Investments Over Active Investments
Fred refutes the myth that the DOL fiduciary rule favors passive investing over active investing and provides an update on the status of the rule under President Trump.
When 401(k) plans were first becoming popular, one of the selling points was that plan sponsors could avoid fiduciary liability because the investments were directed by participants. That was a myth. The reality is that there has been more litigation against 401(k) fiduciaries than there was about defined benefit plans.
Another belief about 401(k) plans was that plan sponsors and fiduciaries would never be sued over company stock investments, because employees should be entitled to invest in their employer’s stock without the potential of fiduciary liability. Once again, the common perception was dangerously inaccurate.
More recently, a belief has developed that, if a plan uses index, or passive, mutual funds, the fiduciaries are protected from liability. As with the other perceptions, this reflects a lack of understanding of the fiduciary rule and its requirements. This article discusses those requirements and how they apply to the selection of investments for 401(k) plans.
The views expressed here are those of Fred Reish. They should not be construed as investment advice or as the views of Hartford Funds or the employees of Hartford Funds. They are based on available information and are subject to change without notice. The information above is intended as general information and is not intended to provide, nor may it be construed as providing, tax, accounting or legal advice. As with all matters of a tax or legal nature, please consult with your tax or legal counsel for advice. This material and/or its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Fred Reish.
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