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Proposed Fiduciary Rule Elicits Strong Debate

The Department of Labor (DOL) in April released a revision to its


fiduciary rules intended to close a perceived loophole that allows for
potential conflicts of interest between a retirement investment
adviser and plan participants.
Mark Johnson, Ph.D., J.D.
817-909-0778
mark@erisa-benefits.com

Consulting services in:


Fiduciary liability
401(k) and ESOPs
Pension benefits
Bankruptcy
Cash balance conversions
Group life & health plans
Health plan reimbursement
Long term disability benefits
Retiree medical plans
Severance benefits
Survivor benefits
Third party administrators
VEBA plans

As reported in Junes article, Department of Labor Issues Proposed


Fiduciary Rule on Investment Advice, the DOLs Notice of
Proposed Rulemaking (NPRM) revises the longstanding regulation
on who is an ERISA fiduciary, extending it to more retirement
advisers, investment managers and broker dealers, to further protect
retirement savings.
Because these changes will affect millions of IRA savers and
retirement participants, the DOL provided an open forum for
stakeholders to provide feedback before public hearings took place
the week of August 10. The DOL received 2,254 comment letters
and hosted four days of hearings featuring 75 witnesses.
Proposed Fiduciary Rule Recap
The DOL believes it has put forth a proposed regulatory package
that is balanced in terms of increasing protections while minimizing
disruptions to good market advice. It seeks to:
Make more advisers fiduciaries and ensure they are held
accountable to their clients if they provide advice that is not in their
clients best interest.

Require more retirement investment advisers to put their clients best interest first, by expanding the
types of retirement investment advice.
Preserve access to retirement education.
Distinguish order-taking as a non-fiduciary activity.
Carve out sales pitches to plan fiduciaries with financial expertise.
Commit the firm and adviser to providing advice in the clients best interest.

ERISA Benefits Consulting, Inc.

www.erisa-benefits.com

817-909-0778

Warrant that the firm has adopted policies and procedures designed to mitigate conflicts of interest.
Disclose any conflicts of interest clearly and prominently. This includes hidden fees often buried in the
fine print or backdoor payments that might prevent the adviser from providing advice in the clients best
interest.
Pros & Cons - Weighing In
Ask and you shall receive. Highly-charged commentary from a wide variety of letter-writers and
testimony from witnesses at the hearingsincluding insurers, asset managers, attorneys, compliance
officers, investor advocates, CEOs, and even a fraud inspectorpointed to the proposed rules farreaching impact.
Proponents of the measure assert that the rule would curtail broker incentives that essentially put clients
into high-fee products and erode their retirement savings. Critics argue the rule is flawed and will leave
lasting negative effects that will actually harm modest investors in the long run.
Here is a sampling of some of the pros and cons brought forth:

The Plan Sponsor Council of America asked the DOL to change their stance on investment
education materials, so investment alternatives available under a plan could be identified on these
materials without being deemed investment advice.

Kenneth E. Bentsen, Jr., president and CEO of the Securities Industry and Financial Markets
Association (SIFMA), is in agreement that more can be done to help Americans save for
retirement, but We believe DOL is the wrong regulator to be in the lead here and the rule as
written completely misses the mark.

The ERISA Industry Committee wrote that more changes were needed to avoid increasing
regulatory burdens, costs and uncertainty among plan sponsors, plan participants and service
providers.

The CFA Institute, representing 120,000 chartered financial analysts and other investment
professional members, believes the proposal does a good job of accommodating various
business models while still requiring investment service providers to act in their clients' best
interest.

Charles Nelson, CEO of retirement at Voya Financial, testified that a customer bill of rights
would be better than a new fiduciary standard and go a long way toward informing participants
in retirement savings accounts about what they are paying in fees and transaction costs.

Don Trone, CEO of 3ethos, a company that focuses on regulatory and compliance issues, believes
the DOLs procedures could be challenged in court.

Congress also added its comments:

Rep. Maxine Waters, D-Calif., ranking member of the Financial Services Committee, and Bobby
Scott, D-Va., ranking member of the Education and Workforce Committee, along with several
other Democratic House members, called for a new standard to address IRA rollover advice and
other recent practices, in their letter to Secretary of Labor Thomas Perez.

ERISA Benefits Consulting, Inc.

www.erisa-benefits.com

817-909-0778

GOP members said the rule as written would cut off vital financial advice for low- and middleincome families and small business owners, and ban some of the most basic advice, such as
rolling over assets from 401(k) accounts.

Whats Next
Although momentum is supposedly with proponents, it is expected that even more modifications will be
made before a final rule is approved as a result of the vigorous response. Once the transcript of the
hearings is published in the Federal Register, another comment period will re-open for up to 45 days.
Labor Secretary Thomas Perez has indicated that the DOL is open to making alterations, but with a final
rule scheduled to be released next spring, time is short to make widespread changes to the 1,000+ page
measure. In the meantime, some financial services firms are preparing for potential new compliance costs,
while others just see this as a first step in a longer process of fiduciary evolution.

ABOUT THE AUTHOR. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a
former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has
practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He
works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree
medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in
bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-9090778 or www.erisa-benefits.com.
ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and
does not engage in the practice of law.
August 2015

ERISA Benefits Consulting, Inc.

www.erisa-benefits.com

817-909-0778