Compliance May 4, 2010

SPARK Institute Supports Broader Safe Harbor for Annuity Selection

As responses to a request for public comment on use of lifetime income solutions in retirement plans continue to be submitted, a trade group has weighed in with the opinion that sponsors should not be forced into anything.
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In response to the request for information from the U.S. Department of Labor (DoL) and the Department of the Treasury, General Counsel Larry Goldbrum of The SPARK Institute argued the retirement services industry is already developing lifetime income solutions. The SPARK Institute said regulators should allow investment managers, product providers, recordkeepers, plan sponsors, and others in the retirement plan community to continue to develop products, services, and tools for participants before considering mandates.

“We urge the agencies to maintain a competitive environment where a diverse mix of solutions is available, with plan sponsors and participants retaining the discretion to voluntarily adopt the options that best suit their needs,” said Goldbrum, according to a news release. “The SPARK Institute is developing standards that can be used by various lifetime income providers in exchanging data with retirement plan recordkeepers. This will help mitigate the challenges faced by all the product providers in obtaining and exchanging information from unaffiliated customer-facing plan recordkeepers.”

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The SPARK Institute also contended that the DoL should clarify and broaden the safe harbor for selecting annuity providers to help plan sponsors overcome concerns about potential fiduciary liability.

Furthermore, SPARK said the DoL should issue guidance specifically stating that providing information about lifetime income options, available both inside and outside of the plan, will not cause a plan sponsor or service provider to become an investment fiduciary.

The SPARK Institute document is available at www.sparkinstitute.org/comments-and-materials.php.

Compliance May 4, 2010

ERISA Advisory Council to Review Audit Rules and Financial Reporting Model

The 2010 ERISA Advisory Council will study whether the audit requirement and financial reporting model contained in the Employee Retirement Income Security Act (ERISA) §§ 103 and 104 provide the protections to plan participants and beneficiaries that Congress originally intended.
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An Advisory Council Issue Paper said the objective of the study is to identify what actions, if any, the Secretary of Labor may take with respect to ERISA’s audit requirement and financial reporting model to improve the Department of Labor’s oversight of employee benefit plan audits in order to enhance retirement security in the United States. The council intends to study how auditors work with plans to comply with ERISA § 103, the advantages and disadvantages of the audit requirement, the current financial reporting model under § 103 of ERISA, whether that model can and should be modified, and to what extent, if any, it should be modified.  

The study will include a review of the applicability of limited-scope audits.  

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The council’s recommendations will focus on the types of guidance or regulations that the Secretary should consider with respect to ERISA’s audit requirement and financial reporting model. Depending on its findings, the council might recommend, among other things, that the Secretary seek enhanced statutory authority to prescribe a new reporting model (i.e., accounting standards or GAAP), prescribe revised or new audit and auditor standards for employee benefit plans, or both.  

The Issue Paper pointed out that at the time ERISA was enacted, the most common retirement plans were defined benefit pension plans, and defined contribution plans have increasingly become the preponderant model for today’s workforce. 

In addition, the Council noted:

  • Plans in 1974 did not operate in the computerized, automated environment and varied structures that exist today.
  • They rarely invested in sophisticated, alternative investments or other complex financial products that are commonplace in the current markets;
  • The types and structures of institutions holding plan assets have also become more complex over the years; and
  • Both Generally Accepted Auditing Standards (“GAAS”) and Generally Accepted Accounting Principles (“GAAP”), as they apply to employee benefit plans, have changed since 1974.

The Council said these changes warrant a review of ERISA’s auditing requirements and financial reporting model. 

 

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