Compliance

An Inside Perspective on Rollover Rulemaking

Ever wonder why so many different regulators are voicing concern over employer-sponsored retirement plan account rollover practices—especially rollovers into individual retirement accounts (IRAs)?

By John Manganaro editors@strategic-i.com | March 26, 2014
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Besides the Department of Labor (DOL), which has been considering a new fiduciary definition that could add certain IRA rollovers to the list of prohibited transactions barred by the Employee Retirement Income Security Act (ERISA), both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) are weighing rollover rule changes of their own (see “Some Advisers May Want to Pause on Rollovers”). Why so much simultaneous attention from the distinct regulatory groups?  

Follow the money, says Tamara Cross, assistant director of education, workforce and income security issues at the Government Accountability Office (GAO). She points to a wide range of research showing rollovers into IRAs could top $2.1 trillion over the next five years (see “For IRAs, It’s All About the Rollover”). With so much money flowing out of the employer-sponsored plan environment, it’s no surprise multiple regulators want to head off potential conflicts of interest and make sure participant dollars are treated fairly, Cross says.

Cross discussed the various regulatory efforts related to IRA rollovers and plan distributions during the final day of the 2014 NAPA 401(k) Summit, hosted by the National Association of Plan Advisers (NAPA) in New Orleans. She describes the role of her agency as the “watchdog of Congress” that conducts nonpartisan investigations into social and economic issues. The results of GAO investigations are shared with lawmakers and a long list of regulatory agencies that have a standing in the various subjects on which the office reports.

A little more than a year ago the GAO published a report on IRA rollovers and plan distribution practices, Cross explains, which was shared with Congress, the DOL, the SEC and others. The report levels fairly harsh criticism at the DOL and the other regulatory groups tasked with policing the different facets of plan rollovers and distributions. Cross says the GAO observed a systematic bias towards IRA rollovers compared with other options participants have for pulling assets out of an existing 401(k) account and strongly encouraged the various regulatory groups to reconsider how they oversee rollovers.

“During our research we saw the most significant barriers exist when it comes to participants rolling their assets into a new plan,” Cross explains. “Compared with IRA rollovers, service providers make plan-to-plan rollovers exceedingly difficult. We’re urging the regulators to change that.”