Decision “Points”

I have watched with increasing interest the growing furor over the Department of Labor’s (DoL’s) proposed new fiduciary definition.  
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My first impressions of the proposal were positive: Generally speaking, the more people who work with ERISA plans that conduct themselves as ERISA fiduciaries, the better. The notion that broadening that standard would serve to “run off” those not so committed to this business bothered me not at all.

However, and as is often the case with new regulations, areas of concern began to pop up. Those involved with the valuation of privately held stock in employee stock ownership plans (ESOPs) initially were most strident, though the work they do has a tremendous impact on thousands of employer and employee accounts. More recently, and of more interest to many advisers, the DoL’s temerity in bringing IRA accounts under the ERISA fiduciary umbrella has drawn fire from “more than three thousand advisers,” according to the Financial Services Institute (FSI), which has led that charge. Indeed, having despaired of getting the ear of the DoL, FSI says those letters have been directed to the White House itself. Recently The Wall Street Journal dedicated space on its editorial page to the issue (the author was opposed to the proposal).

Meanwhile, at a hearing at the House Subcommittee on Health, Employment, Labor, and Pensions in July, lawmakers on both sides of the aisle pressed Phyllis Borzi, Assistant Secretary of Labor and head of the Employee Benefits Security Administration (EBSA), to rethink the proposal, citing concerns that it cuts too broadly and that it could extract a financial toll as yet undetermined by the regulator. Yet, by all accounts, at this point, the DoL remains unwilling to budge.

One ought not be too surprised, I suppose, at those lobbying so fiercely to preserve the status quo. For good or ill, this industry has grown up around the so-called five-part test for an ERISA fiduciary. Entire business practices and means of conducting business have been constructed with an eye toward avoiding becoming ensnared in ERISA’s web. Moreover, the compensation strictures imposed by ERISA would be problematic, at best, for many of those who currently serve the IRA market—even if a growing percentage of those assets have grown under ERISA’s auspices. Still, there’s an irony in the vehemence with which they protest the potential loss of valued counsel by investors—even as they refuse to embrace a standard that would require them to put the interests of those investors ahead of their own.

Worse, while they acknowledge that the proposal in its current form might be poorly crafted to deal with certain specific issues, they seem to expect the industry to “trust” them to fix those problems after the regulation is issued via interpretative guidance, the issuance of prohibitive transaction exemptions, or the like.

Without doubt, ERISA’s fiduciary definition was crafted at a very different time, and the industry has undergone much change in the interim. One can understand the reluctance to embrace change that might transform a casual comment about a fund into a fiduciary obligation, and the hesitancy to extend ERISA’s reach to the individual IRA market. On the other hand, particularly when one considers how much of those funds originated under ERISA’s shield, the irony of withdrawing those protections at retirement—and at a point when those balances might be large enough to attract the attention of the unscrupulous—is, to my eyes anyway, striking.

The retirement industry (in large part) says it wants more time, thought, and analysis devoted to this proposal—and the DoL claims it continues to do just that.

It is hard to escape, however, a sense that the proposal’s opponents really just want it to go away—while, for proponents, the decision has already been made.

Nevin E. Adams is Dean of the PLANSPONSOR Institute, the education arm of ­PLANSPONSOR. Nevin also is Editor-in-Chief of PLANSPONSOR magazine, and the creator, writer, and ­publisher of PLANSPONSOR.com’s NewsDash. A 30-year veteran of the retirement services industry, he graduated summa cum laude with a BS in Finance, and later received his JD from DePaul University in Chicago.