DOL explains what's lurking on the legislative horizon

Although hundreds of financial advisers, consultants, fiduciaries, IRA experts and record keepers gathered in the ‘Big Easy,’ event goers can agree that fee disclosures and regulations are anything but simple when it comes to the retirement industry.

At the American Society of Pension Professionals and Actuaries 401(k) Summit in New Orleans, ASPPA Chief Executive Brian Graff sat down for a candid talk with Michael Davis, Deputy Assistant Secretary of the Employee Benefits Security Administration at the U.S. Department of Labor on Monday.

“Since baby boomers stared to retire last year what that means is that roughly 10,000 people a day will be retiring for the next several years,” says Davis. “The question of retirement has always historically been about accumulation not people accumulating asset. The question used to be how [do] people deaccumulate and take money out of a retirement plan so the conversation in Washington is really expanding in terms of how people save money and how they take money out of a plan and we’re part of both of those discussions.”

Davis has spent 17 years in the asset management business with J.P. Morgan before joining the “earnest but naive” DOL, he says with a laugh.

Fee disclosure activity is a very important component of their activities and Davis thinks this rule is going to level the playing field, extract information while creating insights for people that they can use to make more affirmative decisions on their plan.

“We think this is a good thing for the participants who at the end of the day pay a lot of these fees,” he says.

He adds that DOL is excited about 404(a)(1)(A) and (B) that will disclose information on an “apples to apples basis to plan participants.”

“The key aspect to this regulation that is really critical is having a one chart format that allows plan participants can compare ‘apples to apples’ products across type; a lot of retirement products can be mutual funds, bank elected trust and in every case those types of funds are regulated by different government entities so the disclosure regimen is not necessarily apples to apples so it literally took years to come up with a regimen that allowed us to create a format to compare on this basis,” he adds.

The DOL is in the process of finalizing a set of frequently asked questions that will address how to report performance issues along with others imperative ones which should be out in just a few weeks, says Davis.

“As you solicit questions from your membership and it sounds like it’s grown you guys have a terrific representation on an early Monday morning in New Orleans so we would welcome those questions actually; they’re very helpful to us,” he adds.

Graff says that another DOL proposed regulation could require a road map or a summary and Davis has received feedback from industry groups who think a road map might be a great middle point versus a summary.

Davis adds that although both can be confusing the DOL is trying to create a venue for a plan sponsor to see this information so they won’t have to search too much but they are looking for input into the question: roadmap versus summary.

“And certainly the National Association of Plan Advisors will be absolutely providing you with that input,” says Graff.

“We look forward to it, we look forward to it,” replies Davis while looking at audience members.

The 408(b)(2) disclosures have to be out to clients by July 1 and participant disclosures have to be out the end of November. One adviser shares with the CEO of ASPPA that a client, with 20,000 remote employees, will have to pay $50,000 to send paper disclosures each year – a cost that is too high industry experts say.

ASPPA has commented on this in the past and Graff says there is an industry letter DOL will receive from 15 organizations including ASPPA very concerned about the cost that will be picked up by participants unless a safe harbor can be met that will allow for electronic delivery versus paper delivery.

Davis says he knows the frustrations surrounding the electronic versus paper delivery but what industry professional don’t realize is that departments have to balance a variety of different constituents and their interests.

The interest in electronic disclosure the DOL understands, he says, adding that those who are most interested in their retirement are nearing retirement and that population tends to be one that is not as electronically savvy which is not always the case but tends to be, says Davis.

The DOL issued a request for information last month and received 80 comments. “It’s a very big and very broad issue that affects not just this disclosure but all the disclosures that the Labor Department [deals with].”

Since participants and pension plans depend on an expert for guidance when it comes to investment advice they turn to a professional. The role of the fiduciary was born with ERISA in 1974 before 401(k) plans existed.

“Most of the plans were large pension plans operated by staffs that had years of training and how to operate them,” says Davis. “If you fast forward to today there’s more money in defined contribution plans than defined benefit, there’s more money in IRA’s than there are in DC plans, most of the assets in IRA’s are rollovers in DC plans; these are situations where individuals are making these decisions, individuals with less training than the pension plan sponsors had to operate the major plans in 1975.” 

Davis adds that the fiduciary question has produced not only a debate but a lot of emotion and he expects nothing but passion in the industry surrounding the issue because there’s no other central concept in ERISA than who exactly is a fiduciary.

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