Many changes could be coming to benefits programs, a few of which involve target-date fund (TDF) fiduciary guidance, the definition of fiduciary and retirement income/distributions.
The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) recently issued general guidance to assist plan fiduciaries in selecting and monitoring TDFs (see “EBSA Offers Tips For Selecting TDFs”). “It’s a good insight into what the DOL thinks is necessary,” Lisa Barton, partner at Morgan, Lewis & Bockius, said during the panel discussion.
Barton provided several fiduciary tips to remember in regard to TDFs and other investments. She suggested fiduciaries should:
• Create a process for comparing and selecting investments, including obtaining information (e.g., investment return, fees and expenses), considering alignment with employees’ ages and retirement dates, and discussing other characteristics of the population;
• Create a process for periodic review of investments including monitoring significant changes in the management team or investment strategy, and examining whether the investment strategy was carried out;
• Understand investments and how they will change: Do you have a “to” or “through” glide path?;
• Review fees and expenses: Understand layers of fees and what services are provided at each layer;
• Inquire about custom or non‐proprietary alternatives;
• Develop effective employee communications;
• Take advantage of available information; and,
• Document the process.
“I think with any fiduciary decision and with respect to governance in general, process is key,” she said.
David Weiner, shareholder at Littler Mendelson, P.C., added that the DOL’s TDF guidance should be interpreted as an application for the way fiduciaries handle all their investment decisions, not just those regarding TDFs. He echoed that documenting a process is crucial.
Even if offering a custom TDF solution makes no sense for a plan, the DOL wants fiduciaries to at least explore the possibility and document their exploration, he said. “At least ask yourself the question,” he emphasized.
The panel also touched on the definition of fiduciary, which Weiner said the DOL is having a “tough” time finalizing, but he anticipates it will not take much longer. The DOL had originally said it would issue a new definition in July, but this has now been delayed. At the 2012 PLANSPONSOR National Conference, Michael Davis—then-deputy assistant secretary for the DOL—acknowledged that distinguishing between education and advice was among the most difficult issues when updating the definition of fiduciary (see “PSNC 2012: The New Fiduciary”).
Another big topic of discussion during the panel was retirement income. Last month, the DOL announced it was seeking comments about rules for lifetime income illustrations provided to defined contribution (DC) plan participants (see “DOL Seeks Comments About Lifetime Income Data”).
There are concerns in the industry that because of the vast number of assumptions involved in determining participants' retirement income, the projection may not accurately mirror their savings at retirement, Barton said. Plan sponsors and providers are worried that participants may think the projection listed on their statement is a guaranteed amount of money at retirement, she said. “The concern is, will this information cause more confusion?”