As the Department of Labor kicks off four days of hearings this week on its proposed changes to fiduciary rules, the Plan Sponsor Council of America says that while it supports the goal of extending ERISAs fiduciary protections, it would like to see further clarification in the final rule, including model language and additional examples.
Stephen McCaffrey, chairman of the board at PSCA, which represents employee benefit plan sponsors, said in his remarks during Mondays hearings that PSCA supports the core goal and approach of the proposed rule in extending the protection of ERISAs fiduciary standard. We believe our retirement system will be greatly strengthened by ensuring that investment advice is provided in the recipients best interest.
He added that, PSCA views the proposed rule as a means to protect pre-retirees and retirees as they approach the phase where they begin withdrawing retirement assets. However, after reviewing and discussing the proposed rule with a significant segment of our members, it is clear that additional clarification on many of these provisions is needed to avoid regulatory confusion.
He recommended that the DOLs final regulation include additional examples and model language to sharpen many of the definitions under the rule.
PSCAs main concerns with the proposed rule are that it would negatively impact employees access to balanced, factual investment advice and that it would have an adverse effect on small plans.
It recommended that the DOL amend its rule so that investment education materials that include asset allocation models or interactive investment materials would be allowed to identify investment alternatives available under the plan without that identification being deemed as investment advice.
While PSCA understands the DOLs concern about steering participants to particular investments, we believe that the identification of specific investment options in asset allocation models and interactive investment materials helps participants understand and connect the dots between general information on asset allocation and corresponding investments in a plan, McCaffrey said.
In its annual survey of retirement plans, PSCA found that the main reason for providing education among plans of all sizes is to increase participation, increase appreciation for the plan and increase deferrals.
PSCA believes there are ways to allow plan sponsors to identify specific investment options without risking the abuses described by the DOL, he said. Proposals that are based on neutral, informative descriptions of the participants options should be permissible under the carve-out. In providing this neutrality, the focus should be on the factually comparative nature of the information and whether it is being provided in a manner that does not rise to the level of a recommendation.
PSCA also believes the platform provider carve-out should not be limited to large plan sponsors.
McCaffrey said in his comments that extending the carve-out to plans of all sizes would be more consistent with core ERISA fiduciary principles, would recognize that small plan sponsors are equally capable of understanding when a platform provider has financial interests and would avoid the imposition of difficult administrative issues related to potential provider disruption and plan design restrictions.
David Certner, legislative policy counsel for AARP, said in his statement at the hearings that economic trends and changes in employer-provided benefits have made the goal of achieving and maintaining an adequate income in retirement more challenging. It is hard enough to save for retirement. Conflicted investment advice should not be one of the barriers millions of Americans face as they work to save for their retirement.
He said that the potential negative impact of conflicted advice costs retirement investors billions of dollars each year.
Because the impact of conflicted advice is so great on individuals who are close to retirement, our members have responded to this proposed rule by submitting over 60,000 individual petitions to the Department as comments in support of investment advice in the best interest of those saving for retirement, Certner said. In general, the public is overwhelmingly in favor of the goal of this rulemaking. The goal of this rulemaking is not only broadly supported by the public, but is long overdue.
He pointed out that most people do believe their financial advisers are acting on their behalf. These proposed rules would appropriately subject more advice to ERISAs fiduciary and conflict of interest rules, and the related proposed exemptions would permit established business models to continue to be available, preserving choice for individuals in the marketplace, while minimizing conflicts of interest that affect the quality of the advice.
The Insured Retirement Institute, meanwhile, disagreed. In its statement during the DOL hearings, it said that it believes extensive changes are needed to make the proposed rule workable and avoid unintended consequences.
Nick Lane, chairman of the IRI board of directors and senior executive director and head of U.S. life and retirement for AXA, said that the rule, as proposed, threatens to limit consumers choice regarding annuities.
Unfortunately, we believe the proposal would significantly limit consumer access to these critical lifetime income guarantees through employer-sponsored retirement plans and IRAs at precisely the point in time when access to them is most needed, he said.
He added that if changes to the rule are not made, specifically to the proposals expansion of the definition of a fiduciary, then the result will be that millions of Americans with modest means or who are just starting to save will not receive information and advice to help them plan for a secure and dignified retirement.
The DOL received more than 900 comment letters from various stakeholders and is now listening to the industrys comments and concerns in person.
Paula Aven Gladych is a freelance writer based in Denver.
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