Borzi Makes Case for Fiduciary Definition Change

Phyllis Borzi, Assistant Secretary of Labor of EBSA, told legislators it is imperative that impartial investment advice be accessible and affordable to retirement plan sponsors and participants.

In testimony before the House Committee on Education and the Workforce, Subcommittee on Health, Employment, Labor and Pensions, Borzi said the Department of Labor’s October 2010 proposed amendment to its fiduciary rule represented its approach to accomplishing these goals.  

Borzi said a new definition is needed because the variety and complexity of financial products have increased, widening the information gap between advisers and their clients and increasing the need for expert advice. In addition, consolidation in the financial industry and innovations in products and compensation practices have multiplied opportunities for self-dealing and made fee arrangements less transparent to consumers and regulators. At the same time, the burden of managing retirement savings has shifted dramatically from large private pension fund managers to individual 401(k) plan participants and IRA holders, many with low levels of financial literacy.  

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Borzi contended the narrowness of the regulation has harmed some plans, participants, and IRA holders. Research has linked adviser conflicts with underperformance. SEC reviews of certain financial sales practices may also reflect these influences. EBSA’s own enforcement experience has demonstrated specific negative effects of conflicted investment advice. 

Borzi assured the panel the DoL is working on concerns related to coordination with other rulemaking entities such as the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC); the costs and unintended consequences to IRAs;  the valuation of employer securities; and distinguishing education from advice.  

In addition, the Department is working to better understand how specific compensation arrangements would be affected by the proposed rule and whether clarifications of existing prohibited transactions exemptions would be appropriate. As it further develops thinking in this rulemaking, the Department is paying special attention to the two primary exceptions to fiduciary status under the proposed rule: clarifying the difference between investment education that does not give rise to fiduciary status and fiduciary investment advice; and clarifying the scope of the so-called "sellers' exception" under which sales activity is not fiduciary advice. In both cases, we will make sure to analyze and address the comments and concerns that were raised during our extensive public comment period.  

Finally, Borzi said, the DoL is exploring a range of appropriate regulatory options for moving forward, taking into consideration public comments submitted for the record, EBSA's economic analysis, and relevant academic research. “In so doing, we are aiming to address conflicted investment advice while not unnecessarily disrupting existing compensation practices or business models,” she stated.  

Text of Borzi’s testimony is at http://www.dol.gov/ebsa/newsroom/ty072611.html.

ASPPA Supports Treasury’s Plan for Reducing Regulatory Burdens

In a letter sent to the Treasury, ASPPA said it supports the Department's initiatives regarding lifetime income distributions and relief for sponsors of safe harbor 401(k) plans who encounter financial difficulties.

Responding to the Department of the Treasury’s “Preliminary Plan for Retroactive Analysis of Existing Rules,” the American Society of Pension Professionals & Actuaries (ASPPA) recommended that these two issues be given top priority in light of the current economic climate and the importance of promoting retirement security through expanded availability and use of lifetime income distribution options.  

The group highlighted a number of recommendations for existing regulations to support innovation and reduce administrative burdens for the retirement plan system: 

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  • Safe Harbor 401(k) Plans – ASPPA recommends that mid-year changes to a safe harbor 401(k) plan be permitted (and updated notices provided), to the extent that the changes would not be expected to significantly impact a participant’s deferral decision. 
  • Electronic Communications – ASPPA recommends that the Department work with the U.S. Department of Labor to create a unified approach for electronic disclosures for retirement plans. 
  • Plan Sponsor Elections Under Pension Protection Act of 2006 – ASPPA and the ASPPA College of Pension Actuaries (ACOPA) recommend that all elections that affect the funding for a plan year be formalized in an attachment to the Schedule SB for the year and that elections regarding credit balances be permitted in all instances to specify a determinable formula in lieu of stating a specific dollar amount. ASPPA and ACOPA also recommend that the ability to make standing elections be expanded, so employers are not required to make the same election each and every plan year and that standing elections be permitted to be written in a manner so as to remain in force as long as the employer continues the business relationship with the individual or company named on the election, even in the event of a change in the individual actuary who prepares the Schedule SB for that plan. 
  • Participant Communications – ASPPA recommends that the Department simplify the required employee communication items by combining and integrating required notices where possible, coordinating timing requirements so that participants do not receive multiple notices on various topics throughout the year, and coordinating with the U.S. Department of Labor to eliminate duplicative disclosures. 
  • Interim Amendments – ASPPA recommends that the interim amendments only be required once every three years. 
The comment letter will be posted at http://www.asppa.org/Main-Menu/govtaffairs/Comments.aspx.

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