A group of trade associations and the U.S. Chamber of Commerce are taking issue with the U.S. Department of Labor’s March proposal to require service providers, such as insurance companies and some advisers, issue retirement plan fiduciaries a guide to fee disclosures.

In letters to the DOL’s Office of the Assistant Secretary for Policy/Chief Evaluation Office, the Chamber of Commerce and the associations argue the proposed amendment to the agency’s 408(b)(2) fee disclosure regulations should not be finalized until comprehensive focus group testing — with their input — shows a need for such guides. The associations include, among others, the Simsbury, Conn.-based Spark Institute, the national Retirement Advisor Council and the Washington, D.C.-based ERISA Industry Committee.

See related story: Navigating fee disclosure

The concern for service providers, is that the process of creating a guide to help plan fiduciaries navigate and understand fee disclosures, is “not easy,” says Michael Hadley of the Washington, D.C.- based law firm Davis & Harman, which advises the Spark Institute on government affairs. Depending upon how a provider presents its information, he says, creating the guide “will be a fairly manual process” and add to the provider’s workload.

Julie Murphy Casserly, an adviser and president of JMC Wealth, says creating more guides and disclosures works counterintuitively because “clients and advisers are not looking at them at all because it’s overkill.”

The DOL on March 12 announced, alongside the proposed rule, it would conduct focus group sessions with small pension plans to determine the need for the guide, but the trade associations argue the focus groups fail to reflect the views of large plan fiduciaries, which represent the majority of retirement plan sponsors, and they say the need for the guide should have been determined well before any proposed rule to require one was issued.

“This sequence is backwards — the department should first gather information needed to determine whether there is a fundamental problem with the 408(b)(2) requirements, determine if the costs of a guide justify the benefits, and only then, if both predicates demonstrate the need, propose a new guide requirement,” according to one of the letters signed by the Spark Institute, New York-based Securities Industry and Financial Markets Association (SIFMA) and Washington, D.C.-based groups American Bankers Association and American Council of Life Insurers (ACLI).

“In order to move forward with any new disclosure requirement, the DOL needs to demonstrate a need for it,” Hadley adds.

Recommendations

The groups suggest the DOL reconsider its composition of the focus groups to include representatives of large plans. The agency has proposed to gather 70-100 plan fiduciaries of small pension plans, those with less than 100 participants, to ask a series of questions about a 408(b)(2) disclosure that the fiduciaries received two years ago.

“We believe that this will not result in data that will be meaningful or useful in evaluating the disclosure’s effectiveness — not to mention the need for more disclosure in the form of a guide,” the Spark Institute, SIFMA, ABA and ACLI letter says.

Of the 130 million participants in pension plans in 2011 (the last year of published DOL data), 118 million were in plans with over 100 participants, the associations add.

“The kinds of products and services used by and provided to small plans, and the ways that plan fiduciaries evaluate them, are very different from large plans,” the letter argues.

Murphy Casserly agrees, saying, “They really are two different business models being large and small fiduciaries and they will all be affected.”

The DOL “needs to take each of their opinions into account in the focus groups,” she adds.

The groups also suggest the focus group testing script be reworded to remove bias. The Retirement Advisor Council, in its letter to the DOL, suggests the discussion guide “use more neutral language.”

For instance, the association says, “We strongly recommend that you eliminate any reference to ‘hidden fees.’”

The associations argue the DOL’s 2012 408(b)(2) disclosure requirement that all fees be disclosed, has rendered the idea of hidden fees “obsolete.”

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