The
Department of Labor’s Employee Benefits Security Administration (EBSA) recently
released an update to its guidance agenda, including a number of priorities
that can be expected to affect retirement plans. Clearly there are some surprises in this updated
priorities document and perhaps some reason for concern as well.
The most
anxiously awaited EBSA guidance are the regulations defining when an advisor, service
provider, or other person may be considered a fiduciary in their dealings with
a plan or retirement account. Of course,
it is not just the defining, but the duties and obligations that accompany that
role, that will matter. We were surprised
to learn that EBSA has now targeted the month of August, 2014, for issuance of
these re-proposed regulations. The
expectation over many months has been “imminent,” based on EBSA comments. But, in every instance, there has been a delay
and a resetting of expectations.
Perhaps the
August 2014 target is an indication that new Secretary of Labor Thomas Perez is
not completely comfortable with the expansive dimensions these regulations reportedly
will have, as formulated under the guiding hand of Assistant Secretary Phyllis
Borzi. Or, given the widely held belief
that Secretary Perez is one of President Obama’s more liberal cabinet members, caution
and industry sensitivity may not be the motive at all. Possibly the new August target is nothing
more than a fail-safe reset of expectations intended to avoid the embarrassment
of another missed deadline. Hopefully
the delay will result in a workable regulation that corresponds to what the SEC
will be doing, that protects retirement plan participants and provides and will
temper what many have feared will be regulatory overreach and a potential threat
to IRA owners’ continued access to advisory services.
Another item
on the guidance plan, with a much closer April, 2014, target date, is “standards
for brokerage windows” in individual account type plans, such as 401(k)
plans. A brokerage window within a plan
investment suite offers participants what can be virtually limitless investment
options. Readers will recall that Field
Assistance Bulletin (FAB) 2012-02R gave us EBSA’s assurance that the very
detailed investment disclosures required for a plan’s designated investment
alternatives (DIAs) under fee disclosure regulations would not apply to investments
chosen under a brokerage window. For
that reason many were surprised to see this on EBSA’s regulatory agenda.
However, the
agency did warn in FAB 2012-02A that it would be unacceptable for a plan to
offer only a brokerage window in order to avoid the need for any DIA disclosures. EBSA cited “…ERISA Section 404(a)’s general
statutory fiduciary duties of prudence and loyalty,” noting that “…fiduciaries
may have duties under ERISA’s general fiduciary standards apart from those in
the [fee disclosure] regulation,” and that the agency would “… determine how
best to assure compliance in a practical and cost effective manner, including,
if appropriate, through amendments of relevant regulatory provisions.”
The FAB’s
reference to “amendments of relevant regulatory provisions” sounds ominously
like we could see a reopening of what most thought was a closed chapter in the
fee disclosure drama. “Brokerage Windows
II” is a sequel we might not want to see.
One item the
industry will welcome seeing EBSA
revisit is the current regulations that plans must follow when selecting a safe
annuity for plan participants or beneficiaries at payout time. A reasonable safe harbor, one that does not
require a plan administrator to be both a psychic and a Harvard economist when
selecting a safe annuity, has been sorely needed. Existing regulations are next to impossible
to confidently meet. This IS good news.
Also worthy
of comment is the distant timeline—again, August, 2014—for proposed regulations
on including lifetime income projections on participant benefit statements. Given the detail in EBSA’s advanced notice of
proposed rulemaking in May of 2013, and the August, 2013, close of the public
comment period, coupled with the urgency EBSA seemed to attach to the issue,
this distant timing is a little surprising.
Perhaps the answer lies in the kind and quantity of public comments the
agency received on its very complex proposal.
Time will tell.
As each of looks
forward to unwrapping something special on Christmas Eve or Christmas Day, it
appears we can also look forward to EBSA unveiling some gifts of its own in
2014.
