What the DOL Has in Store

The Department of Labor (DOL) has released its regulatory agenda for 2013.

According to Fred Reish, from Drinker Biddle & Reath’s Los Angeles office, the agenda includes: 

  • A re-proposal of a fiduciary advice regulation, including proposed prohibited transaction exemptions; 
  • A proposal to require a “guide” for 408(b)(2) disclosures; 
  • A proposal to require retirement income projections on participant benefit statements; and 
  • An amendment to require additional disclosures for target-date funds (TDFs) under both the participant disclosure rules and the qualified default investment alternative (QDIA) regulation. 

Speaking during the latest audio conference for the Inside the Beltway series, Bradford P. Campbell, from Drinker Biddle & Reath’s Washington D.C. office, said the DOL is scheduled to issue the fiduciary definition re-proposal in July. The original proposal would have significantly expanded who is an investment adviser subject to fiduciary rules to include almost everyone who has previously not been considered an adviser. This includes broker/dealers and insurance brokers that receive certain types of fees, such as referral fees or platform fees, Reish added.  

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According to Campbell, the proposal was less about the way a broker/dealer or insurance broker makes advice decisions or the quality of advice, and more about their business models and how they are paid. Some business models would be considered prohibited transactions. However, the DOL has agreed to provide some new prohibited transaction exemptions for activities that could make broker/dealers or insurance brokers a fiduciary.

Campbell said the DOL will make new rules about the rollover solicitation process, and that could be the new controversial element that reignites debate about the proposal this time. “When [the re-proposal] is finally published, all of us will have to spend a lot of time reading. The DOL has included so many aspects in this guidance, it will really have to make it clear what the rules mean,” Campbell stated.  

Reish told audio conference attendees to think of the “guide” for 408(b)(2) disclosures more like a table of contents. He said the DOL wants very detailed information about the page, section and placement in the section where a particular item is addressed in fee disclosures. Reish speculates the DOL will not require plan providers to issue guides for disclosures already received, because that would be very costly and burdensome, but will make the guide requirement prospective for disclosures going forward.  

The silver lining about the 408(b)(2) disclosure guide, according to Campbell, is that the DOL originally was going to add this requirement to the final disclosure rules but decided to deal with it separately. So, there will be a comment period, and it will realistically be 2014 before the regulation would come out.   

Concerning TDF disclosures, Campbell said the DOL has been talking about some sub-regulatory guidance—maybe a field assistance bulletin (FAB)—giving tips to plan sponsors about what to look for when selecting TDFs. If they do so, it is important for plan fiduciaries to be aware of it and use it in decisionmaking, or they are leaving themselves open to litigation, he warned.

On the subject of retirement income projections on participant statements, the DOL says it will explore whether and how a benefits statement should and could express participants’ accrued benefits in a defined contribution (DC) plan as a lifetime income stream in retirement as well as an account balance, according to Reish. Campbell noted that with this subject, the agency issued an advanced notice of proposed rulemaking, in essence asking what it should consider when crafting the proposal for the regulation. It will review comments, draft a proposed rule and ask for comments.   

Campbell said the two rounds of comments reflect the technical difficulties such a requirement presents, such as how to calculate the income projection and what assumptions about participants and the market are used.  

Reish added that the projections will be garbage if the DOL gets this wrong, but the agency cannot leave the industry wide open for making their own assumptions and calculations, because some will make extreme projection decisions that will make it look like participants are way better- or way worse-off than they are.  

Campbell said the regulation will be a trade-off for service providers, as many are already providing such projections. They may be giving up some flexibility in calculation assumptions, but they will also be gaining some fiduciary protection.

Americans Want New Pensions

Americans are highly supportive of pensions and see these plans as a way to improve retirement readiness, a survey found.

Eighty-three percent of Americans report favorable views of pensions, and 82% say those with pensions are more likely to have a secure retirement, according to a research report, “Pensions and Retirement Security 2013: A Roadmap for Policy Makers,” issued by the National Institute on Retirement Security (NIRS). In addition, 84% of survey respondents say all Americans should have access to a pension to be self-sufficient in retirement.   

Support was strong from both men and women (83% and 82%, respectively). Pensions may also play a factor in choosing an employer—if considering a new job, Americans report being nearly twice as likely to pick an employer with a pension than one with a 401(k) plan.  

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Eighty-seven percent of Americans polled contend that policymakers do not understand how hard it is to save for retirement. Millennials are highly dissatisfied, at 94%. Three-fourths of Americans say a new type of pension plan described in the survey is a good idea. More than 90% would favor a new pension plan that is available to all Americans, is portable from job to job and provides a monthly check throughout retirement for those who contribute.  

Even though retirement is in the distant future, virtually all Millennials agree that the retirement system is under stress and needs repair (95%), and that lawmakers need to make retirement a higher priority (90%). They also believe that those with pensions will have a more secure retirement (89%) than those without, and 94% say the lack of pensions for Baby Boomers is creating stress for families and the economy. Millennials are especially supportive of a new pension system (84%), with 88% saying they would consider participating.

Nearly three quarters of respondents (73%) support these public employee pensions because public employees contribute to their pension from every paycheck. For police and firefighters, 86% of Americans say these employees deserve pensions given their job risks. And for teachers, 72% of Americans indicate pensions are deserved to compensate for low pay.  

The survey also found a majority of Americans (85%) continues to report concern about their retirement prospects, with more than half (55%) very concerned. Concern is higher for women than men (90% and 80%, respectively), and concern is high consistently across generational lines.  

Eighty-seven percent of respondents say the increasing number of Baby Boomers retiring without pensions and/or inadequate savings is straining families and the economy. Sixty-seven percent say it is a mistake to cut government spending in such a way as to reduce Social Security benefits for current retirees.  

The poll described a possible new type of privately run pension plan that would be available to all Americans; portable from job to job; easy for employers to administer while offering professional money management; and that would allow for a regular check that lasts through retirement. These characteristics are similar to a possible proposal by the U.S. Senate called Universal, Secure and Adaptable (USA) Retirement Funds (see “The Retirement Security Crisis and a Plan to Solve It”).  

The survey was conducted by Mathew Greenwald & Associates as a nationwide telephone interview of 800 Americans age 25 or older. The report is available here

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