Compliance March 2, 2011

EBSA Faces More Criticism on Definition of Fiduciary Proposal

March 2, 2011 (PLANSPONSOR.com) – In a second day of testimony regarding the Department of Labor’s proposed change to the definition of fiduciary, witnesses continued to express concerns.
Reported by

The Securities Industry and Financial Markets Association (SIFMA) and the Investment Company Institute (ICI) both agreed with previous witnesses that the Employee Benefits Security Administration’s proposal is too broad (see ABC Warns against Too Broad Definition of Fiduciary) and may disrupt established business practices of financial institutions interacting with employee benefit plans. In addition, both groups encouraged the agency to look into the costs of the proposal (see EBSA Hears Warning on Pending Rule Changes).  

ICI suggested a rewrite of the rule, while SIFMA urged EBSA to confer with the Securities and Exchange Commission and other regulators on the interaction of its proposal with the requirements of Dodd-Frank.  

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

Specifically, Paul Schott Stevens, President and CEO of ICI, said revisions to the rule should embrace the following principles: 

  • Persons who deal with plans or IRA investors must know whether or not they are fiduciaries. 
  • Fiduciary status should attach only to genuine advisory relationships where a position of trust and confidence exists. 
  • Simply selling an investment product cannot be a fiduciary act.  
  • The rule should not discourage the assistance that recordkeepers engaged to administer plan accounts provide to help fiduciaries prudently select and monitor plan menu investments, a point made in the first day of testimony by J.P. Morgan (see J.P. Morgan Asks for Clarification on Redefinition of Fiduciary). 

 

Ken Bentsen, Executive Vice President for Public Policy and Advocacy at SIFMA, said the rule appears to be in conflict with section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, in which Congress asked the SEC to conduct a study on investment advisers and broker/ dealers and the distinctions between them when providing personalized investment advice and further authorized the SEC to promulgate a rule establishing a uniform standard of care for the provision of such advice. Bentsen noted that the SEC has now presented its study to Congress and recommended that the Commission adopt such a standard, that, based on the SEC study and direction from Congress, would appear to be quite different than the standard being proposed in the DOL’s proposed rule.  

“One would hope that the agencies will coordinate rule-making so that the change in the standard of conduct would be effective at the same time that this regulation and the changes in the necessary prohibited transaction trading exemptions were effective,” he said.  

The SIFMA testimony is here.  

The ICI testimony is here. 

Benefits March 2, 2011

Group Blames DB Decline on Funding Volatility Concerns

March 2, 2011 (PLANSPONSOR.com) – A new research brief by a Washington, D.C. trade group blames “an onerous regulatory environment” for the trend away from defined benefit and toward defined contribution plans.
Reported by

A news release from the National Institute on Retirement Security (NIRS) charged that the legal and regulatory framework governing pension plans “created funding volatility for companies sponsoring pensions, rather than facilitating predictable costs that enable companies to effectively manage cash flow.” 

According to NIRS:

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

  • Companies may not understand that employees value pension benefits. NIRS research indicates that nearly nine out of ten Americans believe all workers should have a pension to help ensure retirement security, and 84% believe policymakers should make it easier for employers to offer pensions.
  • Private-sector industry shifts have seen fewer new industries offering pensions. For example, the number of domestic manufacturing jobs with long-tenured employees has declined, while there has been a growth in information technology companies that typically have employees with shorter average tenures.

 

NIRS recommended that: 

  • pension law be changed so that plan funding is less volatile,
  • employees be given a way to share the cost of pensions by allowing pre-tax contributions,
  • pensions be made portable, and
  • officials create an avenue for third-party sponsorship of a pension plan.

 

“Americans soon will start to feel the sharp sting of the trend away from pensions as the first of the 78 million Baby Boomers turn 65 this year,” said Diane Oakley, NIRS executive director, in the news release. “This retirement shortfall will have negative consequences for individuals, the U.S. economy, the job market, and governmental public assistance programs. It’s a troubling forecast.”

The group’s research brief is here.

«