Companies Fight to Preserve Conflict of Interest Provision

ERISA bars transactions by plan sponsors and other fiduciaries that could pose conflicts of interest unless the Department of Labor (DoL) approves them.   The Wall Street Journal reports that the provision companies are trying to save eliminates the requirement for service providers to apply for DoL exemptions.

The provision, pushed by the Securities Industries Association and Fidelity Investments is opposed by Senate Finance Chairman Charles Grassley (R-Iowa), a member of the House-Senate conference committee now trying to reach a final version of pension reform (See Enzi Gets Nod as Chair of Congressional Pension Reform Conference Committee ).   “Prohibiting conflicts is a principle that’s stood the test of time. If we chip away at that principle, it would set a precedent for further erosions of employee primacy,” Grassley said, according to the WSJ.

The provision is seen as a hindrance to brokers and hedge funds hired by employers to manage and invest pension assets. Many requests for exemptions are from brokers to conduct transactions with small and medium-size plans for complex investment instruments such as futures and options derivatives. Advocates of the current law argue that the exemption approval process assures transparency and makes sure that pension-plan trustees understand the risks. The approval process can run from six months to a few years.

Instead of requiring service providers to apply for DoL exemptions, the provision calls for providers to only make sure the transaction is done for “adequate consideration,” an amount that the plan trustee and the service provider consider to be a reasonable, fair-market price. Critics say that scrutiny of the arrangement would come too late to protect workers.

Worker advocacy groups are lobbying to kill the provision for the final version of the pension reform bill.