Compliance January 19, 2011

Consultant Says Distribution Recommendation is "Advice"

The Department of Labor (DoL) requested comments on if advice relating to a plan distribution should be included in the definition of "advice" under fiduciary standards; Aon Hewitt believes it should.
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In a letter to the DoL, Aon Hewitt said such a recommendation should be included in the definition of investment advice. The firm noted that differentiating between a recommendation to invest in plan options and to invest outside of the plan creates an inconsistency in the application of fiduciary rules under the Employee Retirement Income Security Act (ERISA) and could bias an adviser to recommend a distribution to both avoid ERISA fiduciary status and suggest an investment in which the adviser has a financial interest.  

“We view the application of fiduciary standards to advisers who recommend plan distributions as a logical application of ERISA’s fiduciary rules, and certainly in the best interests of participants and beneficiaries,” the letter said. 

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Aon Hewitt added that it anticipates that treating all recommendations relating to the application and management of plan assets consistently may result in more participants leaving their assets in their employers’ plans, which has benefits to both participants and employers.  

The firm’s letter is at http://www.dol.gov/ebsa/pdf/1210-AB32-017.pdf.

 

Compliance January 19, 2011

Fiduciary Expansion Proposal Could Hurt ESOPs

Two groups commenting on the proposal to expand the definition of fiduciary have urged regulators not to require those appraising employee stock ownership plan (ESOP) assets to be fiduciaries.
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Corey Rosen, Executive Director of the National Center for Employee Ownership and U.S. Representative Maurice D. Hinchey (D-New York) contended in comment letters posted to the Department of Labor (DoL) Web site that such a rule change would hurt ESOP plans and those who provide them. Rosen said the proposal would diminish the number of ESOPs being started because of additional costs arising from the new need for fiduciary insurance and would ultimately lead to fewer qualified appraisers because some would drop out of the business.  

“Fiduciaries can be held liable for their yearly valuation of ESOP stock and, as a result, services by fiduciaries would add considerable additional costs to these businesses,” said Hinchey, in his letter. “Subjecting businesses with ESOPs to an additional financial burden will likely result in fewer businesses opting into employee stock ownership plans in the future and may even result in businesses shedding their current employee stock ownership plan.”

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Rather than add fiduciary status to ESOP appraisers, Rosen suggested the DoL issue regulations governing ESOP valuations, better define the current requirement that appraisers be “independent,” and mandate the appraisers be credentialed by a professional appraiser organization.

“Impose new regulations on all ESOPs needlessly hurts the good actor and reduces the corresponding retirement of its employees,” Hinchey declared. “I strongly urge the Department of Labor to allow the good actors to maintain the current requirements regarding ESOP stock valuation. For the last 34 years, this program has successfully provided retirement benefits for millions of Americans and should be free to do so into the future.”

The Rosen letter is at http://www.dol.gov/ebsa/pdf/1210-AB32-013.pdf.

The Hinchey letter is at http://www.dol.gov/ebsa/pdf/1210-AB32-026.pdf.

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