The U.S. Department of Labor wants input on a proposal that would significantly broaden the Employee Retirement Income Security Act definition of "fiduciary," subjecting more people to ERISA's stringent standards of fiduciary conduct.

The proposal, out for comment until Jan. 20, would update a 1975 rule that defines when a person providing investment advice becomes a fiduciary under ERISA to reflect changes in investment advice provider practices and plan official and participant expectations.

Currently, ERISA lays out a 5-part test to meet the definition of fiduciary. The Department must prove all five elements to assert a fiduciary breach, which it says hinders its ability to protect plans, participants and beneficiaries from potential conflicts of interest arising from fee practices in the retirement plan services market.

The proposal would expand the types of advice and recommendations that may result in fiduciary status under ERISA to more closely reflect the statutory language and the realities of the current investment marketplace, according to the Federal Register notice.

For example, the proposed regulations wouldn't require the advice to be provided on a "regular basis" and wouldn't require the parties to have a mutual understanding that the advice will serve as a primary basis for plan investment decisions.

The proposed definition would also specifically include appraisals or fairness opinions concerning the value of securities or other property; advice and recommendations on the advisability of investing in, purchasing, holding, or selling securities or other property, and advice or recommendations related to the management of securities or other property. The Department is also requesting comment on whether and to what extent the final regulation should define the provision of investment advice to encompass recommendations related to taking a plan distribution.

DOL's proposing release notes a variety of circumstances not covered by the current regulation under which plan fiduciaries seek out expertise on investment-related matters from consultants, advisers and appraisers who "significantly influence the decisions of plan fiduciaries, and have a considerable impact on plan investments," but who aren't fiduciaries under ERISA, and therefore may operate with undisclosed conflicts of interest and have limited liability for the advice they provide.

"It's causing lot of consternation among service providers and plan sponsor circles," says Sarah Downie, a partner in the compensation and benefits practice of law firm Orrick Herrington & Sutcliff, author of an alert on the proposal.

The proposed definition would sweep in lot of plan service providers currently exempt from the definition of fiduciary, subjecting them to ERISA's stringent standards. If adopted, "it could force a significant amount of plan service providers to revamp their business model and possibly cease providing services to plans which could shrink the vendor market for plan sponsors," Downie says.

While it remains to be seen how far any final rule might go, "The bottom line is that we are going to see changes in this area," says Downie. "DOL has taken the view that the existing definition needs to be updated. There's no question they're dissatisfied with the current definition."

Comments on the proposals are due on or before Jan. 20.