ASPPA News from the Field
2012 Los Angeles Benefits Conference
(LOS ANGELES—January 11, 2012) There was an immediate and strong reaction from the financial investment community when the Department of Labor’s Employee Benefits Security Administration (EBSA) proposed new regulations on October 10, 2010 to update and expand the definition of fiduciary for purposes of ERISA.
Prior to the new proposal, the determination of who is a fiduciary under ERISA was ascertained by applying a five-part test that was outlined in DOL regulations in place since 1975 – more than 30 years ago. The retirement plan industry and financial investment community have changed dramatically since then, especially with the rise of the 401(k) plan and the rapid growth of IRAs as retirement money became more portable. The DOL believed the five-part test was obsolete and the regulations as a whole needed an overhaul. Thus, EBSA proposed the new regulations to bring the definition of fiduciary in line with the times.
However, the DOL wasn’t quite prepared for the “tremendous and passionate” negative outcry from both the financial investment community, retirement plan industry and members of Congress on both sides of the aisle who argued that the new definition was too ambiguous and broad. The dominate concern seems to be that almost all persons who “touch” a retirement vehicle in any investment capacity, such as simply offering investment education or materials, would become a fiduciary under ERISA. While not agreeing with this assertion, EBSA announced on September 19, 2011 that it would withdraw the proposed regulations and re-propose them sometime in early 2012 to address these concerns. Most hoped this announcement meant that the issue would quietly go away and fade into oblivion.
However, Phyllis Borzi, Assistant Secretary of Labor for EBSA, made it very clear when she spoke as the keynote speaker at the 2012 Los Angeles Benefits Conference that a new definition of fiduciary was not a dead issue and that the DOL was fully committed to modernizing the fiduciary regulations to provide protection against investment advice that may line the advisor’s pockets more than it helps the retirement plan participant with their future retirement needs. “Because that’s what the consumer thinks they are getting–sound, unbiased, personalized advice in their best interest–and that’s what they deserve because they are going to rely on that advice….We do have a desire to make sure that when those individuals and when those small employers are given advice by a professional, or at least someone who holds themselves out as a person with expertise in investment matters, that they can literally and legally rely on that advice.”
It is not known how the DOL’s wish to offer this broadened protection will be reconciled with the influential financial investment community’s firm desire to maintain the status quo. Assistant Secretary Borzi did not offer any specifics at what would be changed or added in the re-proposed regulations but she did hint that they may include some special exemptions from the prohibited transaction rules where it is obvious that the participant would benefit from such exemption. At this point, all we in the retirement plan industry can do is speculate and wait, anxiously or with trepidation, for the new fiduciary regulations to be announced as they now certainly will be.
Benefits Advisory & Compliance Consultant
San Diego, California
Category: Member Focus