Pension group calls DOL disclaimer for B-Ds ‘unduly harsh’

The Labor Department’s proposed expansion of the definition of “fiduciary” treats broker-dealers that work with retirement plans too harshly — or so says the American Society of Pension Professionals and Actuaries
The ASPPA fired off a statement today in advance of the department’s hearing this week on the rule. In the letter, the industry association detailed its displeasure with certain parts of the DOL’s proposal — specifically, the language the Department wants to use to clearly spell out the obligations of plan administrators and broker-dealers.
Indeed, the department’s plan would expand the definition of fiduciary by doing away with the current five-part test. The department claims that the existing standard allowed brokers to skirt the law and provide off-the-cuff advice to retirement plans.
Instead, the proposed regulation would make anyone who provides advice to a plan — and charges a fee — a fiduciary. Criticism has erupted from record keepers and broker-dealers, out of concern that seemingly routine actions, like providing a small-business’ retirement plan with a list of funds, could subject them to fiduciary duty.
“In our members’ experience, these small-business owners are surprised when they find out the ‘advice’ they have received for their ERISA-covered 401(k) plan is not actually ERISA-covered investment advice,” Brian Graff, executive director and chief executive of ASPPA, said in his statement today. “We urge the DOL to remove this confusion by clarifying the definition so all parties — particularly plan sponsors — can be sure they are receiving the full protections under ERISA.”
The group took issue with the regulation’s proposals regarding disclosures for commission-based brokers.
The rule would require them and others who weren’t acting as fiduciaries to demonstrate that plans they’re working with know that brokers and other sellers weren’t working in the plan’s best interest and that the brokers weren’t trying to provide impartial investment advice.
“We think that’s unduly harsh,” said Debra Davis, director of government affairs at ASPPA. “We recognize that their interests are likely not adverse to the plan, and to do a good job, many brokers are looking out for the interests of their clients.”
ASPPA sought a model disclosure that would explain that the broker isn’t acting as a fiduciary under the Employment Retirement Income Security Act of 1974, that the advice provided may not be impartial if the broker gets a commission and to require that the pay that the broker gets based on the chosen investments be disclosed.
The group also argued that the DOL’s expanded “fiduciary” rules should not apply to individual retirement accounts, asserting that there are fundamental differences between qualified retirement plans and IRAs. Subjecting retail IRAs to rules for retirement plans would limit firms’ ability to distribute IRAs, while other firms
“Because there isn’t rigorous enforcement by any of the agencies right now, those who are normally compliant will continue to be compliant because that’s how they operate; those who aren’t will just disregard the rules,” Ms. Davis said.
“You would need a vibrant enforcement regime to keep those groups in line, something comprehensive so you can have the kind of oversight that backs up the regulation,” she added.