Commenters Express Concerns About Fiduciary Rule

Comments received by the Department of Labor about its fiduciary rule proposal expressed concern about increased regulatory burdens and costs for retirement plan sponsors and its potential to negatively affect plan participants’ access to plan advisers.

In its 19-page letter to the DOL, the ERISA Industry Committee (ERIC) expressed concern that the new rule will increase regulatory burdens and costs, and create uncertainty for plan sponsors and participants, as well as service providers. The organization suggested nine areas where the so-called fiduciary rule could be improved. Among them:

The DOL needs to clarify who qualifies as a fiduciary. “The regulation should be much more clear about which employees from a plan sponsor can offer authoritative investment advice,” ERIC says. The committee recommends narrowly defining a fiduciary as an employee whose “normal job duties include providing the investment information.”

The investment education carve-out. The section’s “investment education” provision should be modified to allow plan sponsors to identify certain investment options so that employees with varying levels of investment knowledge can participate.

A suggestion is not a recommendation. ERIC recommends narrowly defining a recommendation about investment advice to exclude activities that do not constitute an endorsement of, or encouragement to, invest in a particular way.

Call-center employees are not investment advisers. Employers should not incur liability for the investment advice provided by third party call center employees who provide investment advice. In a recent survey of ERIC members, 64% of respondents said they do use third parties to provide 401(k) advice. And 74% of them provide it as a bundled service contract with third party administrators.

ERIC’s letter is here. 

Empower (formerly the retirement plan services businesses of Great-West Financial) is worried about unforeseen consequences. In its 19-page letter, it says it has grave concerns “that the current regulatory proposal will have the unintended consequence of limiting access for those individuals most in need of guidance.”

The firm points to what it sees as a bias toward fee-for-service compensation arrangements, apparent in the structure of the rule and in the best interest contract exemption, that would be “particularly burdensome” for small account holders, most of whom rely on broker/dealers and call centers for guidance, Empower contends.

The American Retirement Association reiterates its support of aligning the interests of retirement plan advisers to individual retirement investors through a best interest standard.

However, the association’s 19-page letter also suggests a number of what it calls “modest, but critical improvements . . .  needed so that the implementation of the best interest standard doesn’t impede advisers and providers from being able to assist plan participants with key concerns, including rollovers or investment education.”

The association calls on five principles in its comments:

• Plan advisers should be encouraged to help plan participants with rollovers, not penalized for providing advice to the plan;
• Restrictions on investment education shouldn’t make participant education harder to translate into practice, and thus less helpful to participants;
• A best interest standard shouldn’t discourage advisers from wanting to work with small businesses;
• The platform marketing carve-out has to extend from the platform providers to third-party administrators (TPAs) and others that actually market the platforms or it won't work; and
• There must be a two-year transition period after publication of the final rule to allow adequate time to transition existing relationships to the new requirements.

The association has proposed a separate exemption for advisers that provide “levelized compensation advice,” so that retirement plan advisers will not be at a competitive disadvantage in helping participants make critical rollover decisions compared with advisers who had no previous relationship with the participant in the plan.