Opinions August 29, 2016

PLANSPONSOR Readers Make a Slight Turnaround About the PPA

A comparison of reader surveys then and now shows a slightly more positive view of the sweeping legislation.
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When we surveyed PLANSPONSOR NewsDash readers right before the Pension Protection Act (PPA) was passed in 2006, their views of the legislation were mostly negative.

More than one-quarter (25.93%) said it was a bill best left unsigned, while roughly 15% said it was a “disappointment.” Most of the negativity was about provisions relating to funding defined benefit (DB) plans, with one reader noting, “In seeking to ‘protect pensions,’ as the name implies, the bill ultimately makes it more onerous to companies who have them, who will in turn abandon the plans in greater numbers.”

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But, still, in general, no one said the bill was a “monumental improvement on the current system,” and one reader said, “I do not see any real change here, just a remix with a couple of twists.”

In a separate survey about the PPA’s automatic enrollment provisions, while a few were looking forward to implementing automatic enrollment, only 28% said auto-enrollment’s impact would be “huge.” A plurality of respondents (38%) anticipated a modest impact from the auto-enrollment provisions.

Among those who saw the legislation as a detriment was the reader who said, “I believe that the rigorous auto-increases in deferral percent on an annual basis will be off-putting to employers and employees. I like the concept, but I’d rather do a better job of reminding employees to check their deferral percent when they receive a pay increase rather than auto-increase it and have them waive that increase retroactively, which then impacts administration of the plan.”  

One reader predicted that “auto-enrollment will be widely, if not 100%, adopted.”  But then said that the “real question is, will it help ultimately the savings in America?”

In another survey about the advice provisions in the PPA, most responding readers found them reassuring. However, one reader noted, “What good is governmental advice?  They will only change it later and hold us responsible for having not already followed what they were going to decide to change to later.” Interesting observation considering the Department of Labor’s final conflict of interest rule. 

How Readers Feel Now

Fast forward 10 years later, and our latest survey of PLANSPONSOR NewsDash readers, finds a slight turnaround about specific provisions.

Despite reservations about automatic enrollment provisions 10 years ago, respondents in the latest survey ranked that at the top of the list (59.3%) of provisions of the PPA and related regulations that have helped improve retirement security the most. Other top choices were “making Roth contributions a permanent option” (51.8%), “qualified default investment alternatives” and “eliminating sunset for catch-up contributions” (48.1% each).

Despite positive reaction to ‘computer model’ advice rules in the PPA 10 years ago, in the recent survey, only 3.7% indicated this was a provision of the PPA and related regulations that have helped improve retirement security the most, while 26.1% said it missed the mark.

Perhaps the only sentiments that haven’t turned around are feelings about the DB plan funding provisions. Readers in the recent survey ranked new funding rules for DB plans at the top of the list (43.5%) of PPA provisions that missed the mark. More than 17% said new funding rules for multiemployer plans missed the mark.

Most respondents (55.6%) had mixed feelings about whether, overall, the PPA has improved the retirement security of American workers; 18.5% said it has, and 25.9% said it has not.
Compliance August 26, 2016

Adviser Advocacy Group Backs Fiduciary Rule

Filing a “friend of the court” brief in support of the DOL’s new fiduciary rule, the Financial Planning Coalition argues advisers will be able to adapt successfully to the new conflict of interest restrictions. 

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The Financial Planning Coalition, comprising the Certified Financial Planner Board of Standards, Inc. (CFP Board), the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA), filed an amicus brief in the U.S. District Court for the Northern District of Texas, supporting the Department of Labor’s (DOL) fiduciary rule and opposing efforts to stop the rule from taking effect.

In its amicus brief, the coalition specifically notes their “strong opposition to the current attempt to stop the rule through a court challenge.” The coalition submits that the experiences of its professionals and their clients show that a broadly applicable fiduciary standard represents a win-win for the industry and the public. In short, the coalition argues that the business success of its members, who are generally held to very strict standards of conduct in terms of conflicts of interest, prove in advance that the stricter fiduciary paradigm will not in itself stifle innovation or quality service. 

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“The current regulatory framework … fails to align advisers’ interests with investors’ by leaving open significant loopholes that allow for the sale of financial products that may not be in the best interests of the investor,” the coalition writes. “The Department of Labor’s strengthened fiduciary rule is therefore necessary and appropriate to protect the public.”

The brief centers around three critical points of argument. First, the coalition argues, investors currently suffer from a lack of complete, truthful disclosures, and this is having a measurable negative effect on retirement outcomes. Second, “empirical research and the coalition’s own practical experience confirm that middle income investors will retain ready access to professional financial advice under a fiduciary standard of conduct.” And finally, based on CFP professionals’ experience under internal standards similar to those required by the Best Interest Contract Exemption, the coalition argues the rule provides “a workable solution to allow for advisers to receive transaction-based compensation while providing advice that is in the best interests of the client.”

“The coalition’s experience—involving nearly 80,000 financial-planning professionals of all business models and sizes—offers a reality that starkly contrasts with the speculation from the rule’s opponents, and provides the court with a unique perspective on the issues in this case,” the amicus brief states. “Thousands of CFP professionals and FPA and NAPFA members across the country currently provide fiduciary-level services to investors with business models requiring no or very low minimum assets under management.”

The full brief, which offers considerable detail on the success of advisers working under the auspices of the Financial Planning Coalition, is available in full online. 

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