Compliance February 11, 2011

Groups Offer Fiduciary Change Suggestions

Two trade groups have applauded the U.S. Department of Labor’s proposed redefinition of a fiduciary, but suggested a handful of improvements.
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The input came in a public comment letter from The Pension Rights Center and the National Employment Lawyers Association (NELA).

“The proposed regulations are much-needed and long-overdue,” the two groups wrote in their comment letter. “…this is a much needed regulatory change that will better protect plans and participants and facilitate more effective enforcement when misconduct is uncovered. The Pension Rights Center and NELA applaud the Department for pursuing this initiative that will benefit both retirement plans and their participants and beneficiaries.”

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The groups also said:

  • A provision labeling as a fiduciary someone who issues “individualized” investment advice, might have an unintended effect.  “This aspect of the regulation might provide a perverse incentive to some providers of investment advice to not tailor the advice to the particular needs of the individual in order to avoid fiduciary status.” 
  • The provision making a person offering conflicted advice not be labeled a fiduciary if the person getting the advice knows about the conflict might present participants with a distinction many can’t appreciate. “While we believe that this limitation may be appropriate when such advice is provided to a sophisticated plan fiduciary, it is not appropriate when the advice is given to individual participants or their beneficiaries,” the groups wrote. “The Center and NELA have worked with participants for 35 and 26 years respectively, and it is our experience that most plan participants will not be able to discern when advice is impartial or conflicted.”
  • Regarding a DoL request for comment on to what extent the person providing advice regarding a plan distribution should be a fiduciary, the groups commented: “We are especially concerned about the problem of advice given by plan custodians and nonfiduciary administrators. We are aware of participants and beneficiaries who call plans to arrange for or inquire about a distribution who are then solicited to invest in products offered by the plan service provider. At a minimum the regulations should address this concern by making the entities that provide this ‘advice’ fiduciaries.”

The full comment letter is here. 

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