In his role as CEO of Ubiquity Savings + Retirement, Chad Parks spends a lot of time analyzing and responding to regulation and legislation impacting public and private retirement plans.
Last week’s move by the U.S. Senate, echoing earlier House action, to remove the safe harbor established by the Obama administration that allowed state- and city-run retirement plans established for private sector workers to be exempted from requirements of the Employee Retirement Income Security Act (ERISA), is no exception. And like many other pieces of regulation or legislation impacting the retirement planning marketplace, Parks feels this one has pretty much been completely misunderstood by the wider mass media.
While national media headlines (and indeed full news reports) widely portrayed the House and Senate actions as a successful attempt by Wall Street lobbyists to prevent the creation of state- and city-run plans for the private sector—ostensibly so that investment and/or plan providers could themselves source this business—Parks does not see it that way.
“Let’s break this down,” he writes to PLANADVISER. “Originally the states had put together plans across the board to use individual retirement accounts (IRA) so as not to be subject to ERISA before the new fiduciary rule came into play. Then, through the fiduciary rule, the DOL was pushing hard to have all IRA products subjected to ERISA.”
Against this backdrop, Parks observes, the states “reiterated their need to be exempt from ERISA—hence the request from them to be exempt.” The DOL in turn issued an exemption for these state-based programs to be free from ERISA standards.
“The current administration is seeking to delay or outright kill the fiduciary rule, which can be good for the states, removing their concern about their exposure to ERISA,” Parks notes. Of course, removing the tougher fiduciary standard could be “bad for the average investor who would have benefitted from the tighter controls it would force on Wall Street.”
Parks continues his argument: “With the abolishment of the fiduciary rule, this becomes a moot point, since the IRA plans would not be subject to ERISA and hence we’re back to square one where the states could offer IRAs that were never going to be subject to ERISA in the first place if it were not for the fiduciary rule. That’s really what it is. The subtleties are not understood outside of our industry, yet this is making big headline news.”
Parks says it is particularly egregious, seeing the widespread claim that “killing the exemption from ERISA for state- and city-run plans is designed to benefit Wall Street.”
“Wall Street does not want this business in the first place,” Parks contends. “Wall Street doesn’t have product for the small business market that these retirement mandates are designed to support. Wall Street does not participate here and is not a valid part of the conversation.”
That being said, Parks also stresses that “killing of the fiduciary rule will absolutely benefit Wall Street by not extending ERISA fiduciary standards to their IRA products from which they have enjoyed awesome amounts of revenue, while not putting their customers’ best interests at heart. That is a subject that needs to be highlighted and discussed—I’m talking to you, mass media.”
Parks’ “final note on all of this” is that unless the states “completely panic and receive bad counsel, they should proceed with their plans as intended.”