Secretary Borzi said the initiative is intended to assure retirement security for workers in all jobs regardless of income level by ensuring that financial advisers and similar persons are required to meet the Employee Retirement Income Security Act’s (ERISA’s) standards of fiduciary responsibility when providing investment advice. Borzi said EBSA has been, and intends to continue, working with plan sponsors, participants, service providers, other federal agencies, including the Securities and Exchange Commission (SEC), the Department of the Treasury, and the Commodities Futures Trading Commission (CFTC)) as well as other experts to produce the best possible final regulation.  

In this regard, EBSA does not believe there are any fundamental inconsistencies with provisions of the new Dodd-Frank business conduct rules and the implementing regulations of the SEC and CFTC, such that the Department’s proposal would result in swap transactions being prohibited by ERISA’s prohibited transactions rules. EBSA intends to make this conclusion clear as it addresses the issue in the final rule.  

Borzi said EBSA also understands that in defining who is a fiduciary there may be implications in applying the prohibited transaction rules of ERISA to current investment practices, particularly in the context of IRAs. EBSA has broad authority to issue exemptions from the prohibited transaction rules of ERISA so that it

If EBSA finds there are arrangements that are not covered by existing exemptions, but that are beneficial to participants and beneficiaries, it can permit these to continue by granting administrative exemptions subject to conditions to safeguard against abuse. The agency can coordinate the applicability dates of its final regulation with any of these new or amended administrative exemptions so that IRA service providers have a reasonable and sufficient period of time to make any necessary changes to their business arrangements.   

“To put it simply, we seek to protect retirees and plan participants from biased and imprudent investment advice by bringing the fiduciary definition more in line with its statutory purpose and origin. In pursuing that objective, we remain committed to developing and issuing a clear and effective final rule that takes proper account of all stakeholder views. We want to make sure we take the time to carefully examine the issues brought to our attention, and carefully craft the final regulation and the accompanying exemptions,” Borzi wrote.She said the goal is to publish a final rule by the end of the year or soon thereafter.

More to Come on Fee Disclosures  

In a live Web chat on its regulatory agenda, Phyllis Borzi, Assistant Secretary of Labor for the U.S. Department of Labor’s Employee Benefits Security Administration said EBSA continues to focus on completing its fee transparency initiatives. Specifically, the agency will be publishing a final rule relating to reasonable contracts and arrangements under section 408(b)(2) of ERISA. The agency published an interim final rule last year and requested public comments on a few discrete issues.  

When fully implemented, this regulation will give plan fiduciaries valuable information about service provider compensation and revenue sharing, and the disclosure of this information will benefit millions of participants and their families, Borzi contended.  

EBSA is simultaneously moving forward with its related welfare plan fee transparency initiative. The welfare plan initiative involves consideration of whether, and to what extent, service relationships in the welfare plan context should be subject to similar fee and compensation disclosure requirements.

EBSA is also continuing work on its “lifetime income” initiative, which involves consideration of steps it can take to encourage the offering of lifetime income options to participants and beneficiaries of defined contribution plans and the education of participants and beneficiaries with respect to such options. According to Borzi, comments the agency received on the joint Labor Department and Treasury Department RFI, and testimony at the Agencies joint public hearing strongly support further consideration or action in a number of areas, including the idea that employees relying on defined contribution plans for their retirement savings would benefit from information on lifetime income streams. The Department, therefore, is considering, as part of the pension benefit statement regulatory initiative, requiring that pension benefit statements for defined contribution plans express the participant's “total accrued benefit” in the form of a lump sum account balance and in the form of a lifetime income stream.  

Borzi also noted that the public comment period on the agency’s Request for Information Regarding Electronic Disclosure By Employee Benefit Plans closed on June 6. Borzi said on the one hand, electronic disclosure, in some cases, may be just as effective as paper-based communications, could lower costs and administrative burdens, and increase timeliness and accuracy. On the other hand, some workers and retirees may not be sufficiently computer literate to receive information electronically or have reasonable access to the Internet and others may simply prefer traditional paper disclosure for important financial information regarding their pensions and other employee benefits. In light of these competing interests, the Department plans to carefully review the public comments to the RFI before making any decisions.