Retirement Plan Guidance is on EBSA’s Gift List for 2014

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.

IRS on the Lookout for Rollover, Valuation and Related Abuses

Those who do not take note of rulings by the United States Tax Court may have missed a recent decision that has caused many in the retirement plans community to sit up and take notice. 

The case, Ellis v Commissioner, involved a taxpayer who funded a business start-up with assets rolled over to an IRA from a former employer’s qualified plan, a transaction referred to as a rollover-as-business startup (ROBS).  Unfortunately, in the process of establishing a used car business with the rolled-over funds, causing the business to enter into a real estate rental agreement with related parties, and paying himself for services to the business, the IRS determined that the defendant ran afoul of the prohibited transaction rules.  As a result, the IRA that had funded the used car business start-up was disqualified, deemed distributed, and the defendant became subject to substantial tax and penalty consequences.

We have known for some time that the IRS has been “making a list, and checking it twice,” when it comes to ROBS to inject a little seasonal flavor.  The Service is deeply concerned about transactions that abuse the tax rules in order to avoid legitimate taxation. 

Some feel this U.S. Tax Court ruling is a “shot across the bow,” bearing in mind that it was the Service that first disqualified the defendant’s IRA, which—following appeal—led to the involvement of the Tax Court.  It certainly should serve as a caution to anyone who might consider using accumulated retirement assets to start a business.  The real scrutiny began roughly five years ago with an IRS compliance initiative targeting ROBS arrangements. 

More typical than the IRA rollover example in this Tax Court case, in the ROBS process a taxpayer sets up a corporation, which establishes a qualified plan.  The plan first accepts the rollover, then uses it to purchase stock issued by the founding corporation.  The stock is in the plan, and the rollover cash used to purchase it is used by the corporation (the owner) to fund a business start-up, or perhaps purchase a business franchise. 

Not all such transactions are considered abusive or illegal.  Some of these ROBS arrangements have been approved in the past.  But some, as in Ellis v Commissioner, either cross the line as prohibited transactions, or break ERISA rules for plan operation.  One example of a post-ROBS operational failure is allowing the owner’s account to purchase the corporate stock, an investment that is denied to others who—now or later—may participate in the plan.  Besides the potential discrimination in such a situation, there may also be issues with establishing the value of the corporate stock purchased with the rollover assets.  Often, the amount of the rollover and the value of the stock purchased by the plan are—too coincidentally— virtually the same, even when the corporate entity has yet to do a dime’s worth of business.  That can be seen as a red flag to a reviewer.

The IRS is also interested in IRA and employer plan asset valuation in more general terms.  Valuation is a special concern when an investment is not traded on a public exchange, and is therefore hard to value.  Such investments may include real property, securities options, debt obligations, partnership interests, and others.  Valuation is of particular importance when potentially taxable distributions are taken from retirement arrangements, or when a taxpayer executes a Roth IRA conversion, or an in-plan Roth rollover (IRR) within a 401(k), 403(b) or 457(b) governmental plan.  Like a distribution of pre-tax assets, a Roth conversion or IRR is a taxable event.  If investments are unintentionally or intentionally undervalued, the asset owner may gain, while the U.S. Treasury—and American taxpayers—lose.

One clear manifestation of this asset valuation concern is the DRAFT 2014 Instructions to Forms 1099-R and 5498, released in June.  In these draft instructions the IRS specified that both fair market values reported on Form 5498, IRA Contribution Information, and distributions reported on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc., were to identify hard-to-value assets. 

The IRS has since made this significantly more detailed reporting an option for 2014, due possibly to challenges involved in information gathering and systems programming for custodians, trustees, and plan administrators.  But, make no mistake; the IRS intends to collect more detailed information on the presence of such assets in tax-advantaged retirement savings arrangements.  The objective can only be to ensure that such assets are not mis-valued in an attempt to avoid proper taxation.

Like it or not, such initiatives serve notice that the Service intends to close some of the cracks through which they believe questionable transactions may have been falling and serves as a warning that anyone entering into one of these arrangements do so with an eye towards the prohibited transaction rules and IRS concerns.

Academic’s Social Security Assessment is Best Argument for Retirement Saving

One of the hot potato issues in Congress over the last several sessions has been Social Security; preserving its solvency, and how best to run a program that provides millions of Americans with replacement of a share of their working-years income during retirement.  “Hot potato” because dialogue on how to maintain this important benefit for older Americans almost inevitably leads to two opposing solutions: reduce benefits, or raise more revenue, chiefly through taxes. 

Regardless of your political leanings, it is likely that one or the other of these options will raise your blood pressure.  To some, the Social Security benefit is a sacred cow that can’t be sacrificed at any cost.  To others, the program and the taxes that support it are increasingly becoming a drag on the economy.  But politicians of all stripes recognize Social Security as the “third rail of American politics.”  It’s a comparison to the danger of getting anywhere near the “third rail” that carries electricity to a subway or commuter train.  Do so at your own peril!

Some, however, can critique and comment on Social Security from a safe distance without getting bloodied in the political slugfest.  One who recently did so from her safe vantage point as an academic also happens to be one of the leading critics of the defined contribution retirement system, Alicia Munnell, Director of the Center for Retirement Research at Boston College. 

In an April, 2013, Bloomberg article Ms.  Munnell stated that the retirement savings workers need beyond that provided by Social Security “cannot be met by a voluntary employer-based system.”  Ms. Munnell advocated “…new, mandatory … retirement accounts—initiated by the federal government but managed by the private sector… [to] replace 20 percent of preretirement earnings.”  In a political climate in which the concept of mandatory health insurance has fractured the Congress and the national electorate to a degree rarely before seen, it’s hard to imagine that federally-mandated retirement saving will find its way onto many lawmakers’ to-do lists.  

Ms. Munnell’s latest retirement analysis is entitled “Social Security’s Real Retirement Age is 70,” published by The Center for Retirement Research.  It is a source of some good information about the relative income replacement effects of workers beginning to receive Social Security benefits at various ages, from the earliest permissible age—62—to as late as age 70.

The study begins with the unequivocal assertion that “Social Security was designed to replace income once people could no longer work.”  Perhaps this is taking Ms. Munnell too literally, but in point of fact Social Security was originally intended to be a safeguard against destitution, to provide a minimum level of income after one’s working years, not to “replace income once people could no longer work.”

Ms. Munnell goes on to provide what many will find to be a valuable and insightful history of the evolution of Social Security benefits, from changes implemented in the 1960’s to allow early access to benefits at age 62, to congressional action in the 1970’s and 1980’s granting enhanced benefits to those who wait beyond normal retirement age, waiting to as late as age 70. 

There is a strong implication that the maximum benefits that are now available only to late-claiming retirees should be available to those who retire at younger ages, because not everyone will be able—or want—to work to age 70.  Ms. Munnell states that when you factor in the Medicare premiums that are deducted from Social Security payments, and the taxation of Social Security benefits for many retirees, “Retiring at age 62 will not be a reasonable option for those who have any ability to stay in the labor force.” 

The answers to this are twofold.  The first answer is “Well, that depends.”  It depends on whether the retiree has other savings, in the form of IRA or employer plan assets, nonqualified savings, property, etc.  Keeping in place robust tax-advantaged saving opportunities—like IRAs and employer plans—is a key to making such savings possible.  These savings, combined with Social Security and Medicare benefits, will hopefully provide a satisfactory quality of life for many Americans and allow them to achieve their retirement goals.

The second answer is really a question: is it necessarily everyone’s right to be able to retire at age 62—or before age 65, 67, or even 70—when life expectancies are rising as they clearly have been?  It may be the hope, or the ideal, of many to have the option of spending 20, 25 or more years in full retirement.  But that may not be realistic for everyone.  Nor should it be looked at as an entitlement.

Retirement at earlier ages may be an option only for those who make a contribution toward that end through their own saving.  And for that reason, we need to strengthen—not give up on—the private retirement system.

Why Can’t More Lawmakers Be Like These Guys ?!

Show of hands: who believes that lawmakers in Washington, D.C., are doing a good job governing our country?  If this fictitious exercise actually took place, I feel safe in predicting that most hands would remain firmly at our sides, in our laps, or perhaps in the arms-crossed pose that our children see when they have misbehaved.  In other words, not too many approving hands raised.

There are certainly those who believe that the current gridlock we are witnessing in our nation’s capitol is a net positive, and that failure to enact laws at the federal level means less government intrusion in our lives, a goal some feel is always worth seeking.  While it may be true that our lives are sometimes over-regulated and interfered with and that “less is more,” our world truly is much more complex economically, socially and politically than the world our country’s founders faced when they set up our form of government.  While less government intrusion may be desired, it still takes a functioning government to keep our nation strong, competitive, and in-step with the rest of the world.  Few would characterize the current lack of cooperation, the intolerance for differences of opinion, and sometimes outright bitterness in Washington, as conducive to a functioning government.  

One notable exception to this partisan dysfunction is being demonstrated by two lawmakers, each from a different party, and each from a different body of Congress.  They are perhaps more visible to those in our industry because they share a legislative priority—retirement security—that is vital to us.  But, even putting any special interest aside, they seem to behave like statesmen of old; respectful, constructive, realistic, practical lawmakers who want to get a job done.  A job they believe is in the best interest of the American taxpayer.

Rep. Richard Neal (D-MA) and Sen. Orrin Hatch (R-UT) have each introduced similar, if not quite “matching bookends” legislation in their respective congressional bodies, bills primarily intended to simplify and enhance retirement saving.  And, hoped for as a natural outcome, to yield better retirement preparedness for American workers.    

The details of their bills, H.R. 2117 and S. 1270, are not the point to be made here.  Suffice it to say they share more similarities than differences, are geared toward making employer-sponsored plans more available to American workers, to make plan administration simpler and more straightforward, and provide genuine incentives to put away more dollars for retirement purposes.

Perhaps the most encouraging thing about these long-time lawmakers is that they “get it” when it comes to the real impact retirement saving has on the U.S. budget.  Some lawmakers, journalists and policy wonks label retirement saving as a cost—a loss—in terms of federal tax revenue, and a significant contributor to our federal budget deficit.  Some of these lawmakers would greatly curtail tax-advantaged retirement saving.  Hatch and Neal recognize that tax-deferred saving is not a loss to the budget, but simply moving taxation “down the lunch line,” to be taxed in a later year when assets are withdrawn by a retiree, or by a saver who needs these assets prior to leaving employment.  Never mind the fact that retirement saving is a HUGE contributor to the capital formation upon which much business and personal lending is based, and is there for,  a great cog in our country’s economic engine.

Imagine, lawmakers who have truly done their homework on an issue that is vital to our citizens’ security, and to our economy as a whole; lawmakers whose vision reaches across party lines, and across congressional boundaries.  Show of hands if you’d like to see more lawmakers in Washington, D.C., govern like these guys.  Thought so!

Academic Freedom, Or Retirement Plan Harassment?

It’s probably safe to say that most who get letters from Yale University are eager to receive them.  They are likely to be prospective college students, hoping they’re about to learn they’ve been accepted into this prestigious Ivy League school.  It’s equally safe to say that the 6,000 or so retirement plan administrators who recently got letters from a Yale Law School professor were not only very surprised, but were less than eager once they learned the letters’ contents.

These letters informed plan administrators that their plans were part of a study being conducted by a Yale Law School professor, the focus of which was excessive fees.  Of the three letter versions sent out by Professor Ian Ayres, one version boldly stated that the professor had “identified your plan as a potential high-cost plan,” and that it “ranked worse than X percent of plans.”  The letter went on to say that the professor intended to publicize the results of the study sometime in 2014 by releasing it to such publications as the New York Times and Wall Street Journal, and would “disseminate the results via Twitter with a separate hashtag for your company.”

Not surprising, the letter caused more than a little heartburn among even the most calm and conscientious plan administrators as they attempted to digest its meaning, including why they had received it, what they might have “done wrong” in administering their plan, and what negative fallout might be in their future. 

This plan-level bewilderment was soon transformed into industry-wide consternation, frustration and—justifiably—more than a little anger.   Not because the industry should be immune to scrutiny, whether from participants, regulatory agencies, the media, or even the academic community.  The displeasure generated by Professor Ayres’ letters was due both to flawed methodology in Professor Ayres’ study, and to its undeniably accusatory, inflammatory and intimidating tone.   

As intrusive as Professor Ayres study may seem to some, it would be wrong to suggest that the subject of retirement plan fees is “not his business.”  It is unquestionably in the public interest that retirement plans be properly run, in order that American workers have a chance to enjoy a financially secure retirement.  “Properly run” does include reasonable fees.”  What is not in the public interest is shoddy workmanship in the design and execution of a study whose stated purpose was to shed light on plan fees and whether or not they were reasonable. 

Among the statistical objections to Professor Ayres’ study is the fact that the data used is from 2009.  In the world of retirement plan fees and fee disclosure this is like road testing a long-out-of-production Rambler against a modern computer-regulated, flex-fuel consuming, state-of-the-art automobile.  Times have changed greatly and especially in the retirement plan industry. Fee disclosure and awareness has resulted in many changes in the industry since 2009.  Professor Ayres’ also looked at fees in a superficial manner, not taking into account the natural economies of scale created by larger plans having more participants, or plans with higher average balances.  Nor did the study weigh the fees charged against the menu of services provided to a plan.  Employee education, participant-tailored investment advice, and other services that are in some contractual arrangements—but not in others—can and do have a large impact on plan fees, many of which are justifiable and reasonable in light of the services received.

Yale Law School was contacted by industry representatives deeply concerned over the flaws in Professor Ayres’ study, and the damage that could be done to individual plans, their administrators and the plan participants, as well the image of the retirement industry as a whole.  Unfortunately, the Law School administration gave what some might characterize as a political response.  It stated that the letters sent by Professor Ayres did not represent the views of either Yale University of Yale Law School, but because Yale faculty “possess academic freedom to pursue their own research,” the institution “cannot either endorse or repudiate [his] research.” 

If Yale cannot—or will not—openly repudiate or question Professor Ayres’ research, perhaps somewhere between the lines of the university’s response one can hope that that it will convey to him the message that the quality and accuracy of his final product is likely to be scrutinized with a fine-tooth comb.  Yale itself does have a reputational stake in the outcome.

It might also be prudent for Professor Ayres to consider the fact that academic freedom granted by an educational institution is not a license to wrongly imply that a plan or a plan administrator is deficient in meeting its fiduciary responsibilities.  It would seem that Professor Ayres may be the party acting “unreasonably” in this case.  

EBSA Revenue Sharing Ruling is Helpful, But Questions Remain

Among the myriad investment options that can be made available to retirement plans and their participants, some have underlying fees built into them, such as marketing, distribution or shareholder servicing fees.  Portions of these fees might be paid to a service provider—such as a third party administrator or recordkeeper—for the services they provide both the plan and the investment provider.  In turn, receipt of such “revenue sharing”—as it is called—may enable these firms to charge lower direct fees to the retirement plans they service.

In today’s highly fee-sensitive environment, revenue sharing payments are receiving scrutiny, right along with the commissions and fees received by those who provide investment advice to retirement plan participants, account transaction fees, and any other types of costs that could potentially reduce a participant or beneficiary’s assets.  That is the world we live in, and most advisers and service providers don’t have a problem with reasonable oversight and disclosure of fees and compensation.

Revenue sharing, specifically, has received a great deal of attention lately, from both the Department of Labor (DOL) and the courts.  It is a requirement to report revenue sharing payments on Schedule C, Service Provider Information, of Form 5500, Annual Return/Report of Employee Benefit Plan, filed with the DOL.  Revenue sharing payments must also be disclosed as part of a service provider satisfying the 408(b)(2) regulations issued by the DOL’s Employee Benefits Security Administration (EBSA).

In early July of this year, EBSA issued Advisory Opinion 2013-03A, in which the agency provided some insight into how it views, at least in part, revenue sharing relationships and payments in the retirement plan environment. 

Adv. Opin. 2013-03A was issued to Principal Life Insurance Company, through its legal representatives.  EBSA was asked whether investment-related revenue sharing payments, such as 12b-1 fees, would be considered plan assets and also when they could be retained by Principal as compensation. Briefly, EBSA advised Principal that facts and circumstances would determine whether revenue sharing payments would be considered plan assets and could be retained as compensation by Principal. 

EBSA indicated that if there are no declarations or contractual terms promising that revenue sharing payments will be used to pay plan expenses, or will be paid to the plan itself, then such revenue payments would not be considered plan assets and could—in this analysis—be retained by Principal.  On the other hand, if—by communication or agreement, formal or otherwise—revenue sharing payments are supposed to benefit the plan by payment of plan expenses, or be paid into the plan, then a plan would have an enforceable claim for such amounts as plan assets, with the usual fiduciary obligations that entails. 
The Adv. Opinion went on to say that beyond any agreements or expectations regarding entitlement to revenue sharing payments, if a service provider were to influence investment selections in order to generate revenue sharing payments for its own benefit, this would be considered a prohibited transaction under ERISA.

This EBSA guidance is helpful and provides the industry with a better understanding of when revenue sharing payments may, or may not, be plan assets, and also how these payments can be used.  We also know that “the rest of the story” likely remains to be written.  There has been a fair amount of discussion within the industry concerning some things NOT found in Adv. Opin. 2013-03A.   Among these is the allocation and use of revenue sharing payments that are—in fact—paid to the plan, rather than being retained by a service provider, and how this should occur.  The complexity in addressing this issue lies in the fact that—in some plans—not all investment options yield revenue sharing payments and participants move in and out of various investments options, thereby individually generating different amounts of revenue sharing.  This raises the question of what these amounts can or should be used to pay for, and also how any “excess” should be used.  Based on the current EBSA guidance, there is no mandated method to follow and plan sponsors and service providers should use a an approach they determine to be reasonable and prudent for the use of and allocation of these amounts.  It would seem that a number of different alternatives would meet this standard until further guidance is provided.  More to come on this issue in the future.

Are Retirement Saving Incentives Incompatible With Tax Reform?

Anyone whose job requires tracking and evaluating legislation, may—sooner or later—consider the benefits of counseling, anti-depressants, or both.  It can be genuinely depressing to witness the developments, or more accurately the lack thereof, on Capitol Hill.  It is depressing on the one hand to witness the lack of cooperation and compromise among senators and representatives whose job it is to govern.  But it is similarly troubling to repeatedly hear from certain sectors that maintaining important Tax Code benefits—like retirement saving incentives—is incompatible with solving our nation’s budget problems, and putting our nation’s fiscal ship on a safe and sustainable course. 

We believe firmly that using tax benefits to encourage people to save for retirement and addressing the federal budget issues are not incompatible goals.   A closer look at the real nature of retirement saving incentives will show how much they differ from some of the other popular “perks” and “tax costs” contained in the Tax Code.  If lawmakers consider just ONE very singular difference, it should be a slam-dunk to maintain retirement saving incentives.  The question is whether lawmakers will take the time to really understand how they differ from other Tax Code incentives, some of which actually do result in lost federal tax revenues.

A close look at this issue is important because the nation seems headed in the direction of tax reform, later if not sooner.  There are multiple tax reform options that have been proposed, most of which—to varying degrees—could significantly restrict or revamp current retirement saving options.  One proposal is to sweep away all tax deductions and exclusions in favor of reduced tax rates, perhaps adding back the most critically important tax incentives.  Another would limit the maximum retirement saving accumulations in combined IRAs and employer plans, while yet another would reduce and cap annual tax deferrals and exclusions.  And there are more, all having the effect of limiting retirement saving tax benefits.

Most of these reform strategies are being proposed under the assumption that workers’ earnings that are deferred or excluded from income each year through retirement saving are lost to the federal revenue stream, and thereby are a “cost” in the grand federal budget-balancing equation.  

This is simply untrue, and a comparison with several other popular—and worthy—Tax Code incentives will demonstrate why.  Consider the universally popular home mortgage interest deduction, which all of us who have purchased a home have benefited from.  By deducting from our taxable income the interest portion of our home mortgage payments, we reduce our tax obligation.  But, in the bargain, the collection of federal tax revenues is reduced, permanently.  Is it a benefit to society to promote home ownership?  Certainly, both for tangible reasons of stimulating the economy, and the intangibles of neighborhood and broader social stability.  But make no mistake, the nation as a whole “pays” for this tax perk.

The same is true of charitable giving, as noble and as beneficial to society as sharing our resources with others may be.  Charitable giving deductions, like the home mortgage interest deduction, reduce taxable income, and thereby permanently reduce the federal tax revenues that such generous taxpayers would otherwise have contributed to the federal tax coffers.  I am not advocating taking away these very beneficial tax incentives that most would say provide a very useful and valuable social benefit but rather using them by way of comparison to the incentives provided for retirement savings. 

Consider, now, the deductions and exclusions for IRA or employer plan saving.  With the exception of Roth-type accounts, every dollar that is given a tax benefit in the year it is contributed to such a plan or account is taxed when it is withdrawn, either during the saver’s retirement years, or by a beneficiary.  Not only are such dollars taxed, but—in being spent by retirees or beneficiaries—they provide dollar-for-dollar stimulus to the economy. 

Furthermore, the assumption of some policy makers that such dollars will be taxed at a lower rate in the withdrawal years is not necessarily sound.  Many taxpayers with substantial retirement savings are NOT in lower taxing brackets after retirement, and beneficiaries—often younger and in their peak earning years—are unlikely to be in the lowest taxing brackets.

So, it cannot logically be argued that retirement saving represents a permanent loss to the nation’s budgetary process.  Therefore, it cannot logically and honestly be argued that tax reform and retirement saving are incompatible.  It is my fervent hope that Congress recognizes this before it throws the retirement saving “baby” out with the tax reform “bath water!”

DOMA Ruling Will Complicate Retirement Plan Compliance

 

Whatever your political or religious views on same-sex marriage, there is little doubt about one consequence of the Supreme Court ruling in United States v. Windsor. There will be significant complication in the administration of retirement plans, at least in the near term. The border-to-border consistency that DOMA provided in spouse-related retirement plan and other benefit plan rules is essentially gone now.   

 

The key element of the Supreme Court’s Windsor ruling is its conclusion that federal law—including those elements that pertain to retirement plans—must recognize same-sex spouses that are legally married under state law. This sounds straightforward, but—as we will see—it’s not that simple.  

 

Following are some of the effects of the DOMA decision in situations where same-sex partners are recognized as married. Bear in mind, the effects may be different in states that do not recognize these marriages. 

  

• The same-sex spouse of a participant in an ERISA-governed plan will have to be given primary beneficiary status unless they affirmatively waive this right.
• Spouse beneficiary options to treat an ERISA-governed plan account as their own, possibly for rollover to their own IRA or to another employer plan, must be honored.
•  In employer plans subject to the Retirement Equity Act (money purchase, defined benefit, and some profit sharing plans), a spouse will have to consent to any distribution that is not in the form of an annuity, and—as a surviving beneficiary—must waive receiving benefits in the form of an annuity.
• For IRAs administered in community or marital property states, a same-sex spouse would likely have to waive their right to be a primary beneficiary if he or she were to be excluded.

  

Some significant uncertainties remain after this decision. Most of these are a consequence of the fact that Windsor did not invalidate the DOMA provision that allows states to recognize only marriages valid under their own laws and disregard marriages that are valid under the laws of another state. The practical aspect of this leaves one with questions like how will the plan of a company based in a state not recognizing same-sex marriage treat an employee who is considered married under the laws of another state? Will a participant who moves from a state that recognizes same-sex marriage to a state that does not recognize the marriage acquire a different marital status for plan purposes? Could a plan, for the sake of uniformity and simplicity, be able to choose to recognize all legally married same-sex relationships, even if the state of domicile of the sponsoring business does not allow same-sex marriage, and does not recognize same-sex marriages performed elsewhere?

  

A number of plan operations and determinations will be affected, though to what extent may depend on further guidance. For instance, hardship distribution availability can be determined by spouse status; the required minimum distribution (RMD) rules are more flexible, both before and after participant death, with a spouse beneficiary; knowing the status of an individual as a spouse—or not—is vital in QDRO determinations; plan testing requires identification of HCEs, which can be influenced by the ownership attribution rules that apply to spouses. Needless to say, the reach and impact of the Supreme Court decision are only beginning to be understood. Another potential area of impact may be plan documents. If a plan has a DOMA based definition of spouse in the document, it will likely have to be amended. Will there be a reasonable remedial amendment period during which plans can make any changes to their governing documents that might be necessitated by the Windsor decision? We have to believe fairness will dictate that this be offered. 

 

Yet another issue relates to the terms domestic partnerships and civil unions? Will the word “marriage” in the Supreme Court’s Windsor ruling be pivotal in federal treatment of same-sex couples who are in state-recognized relationships that are substantially like marriages, but are not actually called marriages?  

 

In the IRA realm, consider an IRA document that states that the laws of the sponsoring financial organization’s headquarters state will be controlling if a dispute arises over rights or options. What will be the consequences if the IRA owner’s state law definition of marriage covers same-sex marriage, but the state where the financial organization is based does not?  

 

Beyond these and other unanswered questions that Windsor has left us, it’s highly likely that we will see more litigation on same-sex marital rights. Already, another case is brewing in Nevada that could go to the heart of whether the U.S. Constitution is violated if states dictate who their citizens may marry. We will likely also see more state legislation and constitutional actions, either to affirm, or to deny, same-sex marriage rights, as activists on both sides see urgency and opportunity.  

  

Hold on, for what may be a long and bumpy ride.

Auto-Enrollment Critics Miss a Major Point

These days it’s pretty common to hear or read a financial writer, academic, or policy wonk, criticize defined contribution retirement plans.  Service provider revenue sharing arrangements, investment fees and performance, participant inexpertise, tax cost, or what-have-you, have all become grist for the critic’s mill.  One of the more suspect criticisms is the charge that automatic enrollment 401(k)-type plans—also known as automatic contribution arrangements, or ACAs—are lowering contribution rates in employer-sponsored retirement plans.  This is the premise of an article in the Wall Street Journal in May of this year, repeating a charge that appeared in the same publication in 2011.  That 2011 article was the most brazen, and was entitled “401(k) Law Suppresses Saving for Retirement,” claiming that the Pension Protection Act (PPA) “is actually reducing savings for some people.”

To take a script page from the late radio personality Paul Harvey, there is a “rest of the story” that deserves equal time.  The most important objective of those who have been supporters of automatic enrollment is to bring more employees into retirement plans, even if only in a modest way.  The logic is that once they have become participants, and see their retirement account balances growing, they will remain in the plan, hopefully becoming more informed, perhaps even more aggressive savers. 

Automatic enrollment detractors cite the fact that average deferral percentages for U.S. retirement plan participants have in some cases declined from pre-auto-enrollment days.  Many plans that have implemented automatic enrollment have set the initial deferral rate at 3% of compensation.  Because many existing participants in 401(k)-type plans defer at levels higher than 3%, an influx of many new participants deferring at this lower rate must—by the nature of statistics and the law of averages—reduce the overall average.   

This does not mean that everyone is deferring at the lower rate.  What it really means is that more are deferring, and those deferring at a lower rate are dragging the average down somewhat.  Another criticism is that some participants take the path of least resistance and enter the plan via automatic enrollment—at a low deferral rate—when they might otherwise have deferred at higher rates if they had entered the plan by making an affirmative election.  And, inertia being what it is, some may not revisit the issue and take advantage of the opportunity to increase their deferral rates.    The “cure” for this, if a cure is needed, may be for plans to consider setting their initial automatic enrollment rates higher than 3% or to implement automatic deferral increases that occur after the initial deferral period. 

Critics need to realize that new concepts take time to reach their potential, to work out initial kinks, and eventually reach the optimum.  Thomas Edison is reported to have said about his inventive endeavors: “I haven’t failed.  I’ve found 10,000 ways that don’t work.”  PPA, it must be remembered, was enacted in 2006, its provisions mostly taking effect for 2007 and later years.  It will take time to reach the optimum.

Some members of Congress seem to see this, and have proposed tweaks to the Internal Revenue Code to help automatic enrollment reach its potential.  For example, Rep. Richard Neal’s Retirement Plan Simplification and Enhancement Act of 2013 (H.R. 2117) has provisions that would encourage setting initial automatic enrollment rates at higher levels.  New plan testing exemptions, and a special tax credit, would be available for plans that set initial automatic enrollment deferral rates at 6%, and raise them—subject to employee opt-out, of course—in following years.

Without bashing the media, it sometimes seems like publications and their reporters are looking for the sensational headline, the calamity, the failure, or the threatening, as a means to capture reader or viewer attention.  With something as important as Americans’ retirement security, thoughtful reporting rather than sensationalism needs to rule the printed page and the broadcasting airwaves.

President’s Budget Includes More Than at First Met the Eye

No matter whom the occupant of the White House happens to be, that person seems bound to please some, while displeasing others.  This is the case with just about any decision or proposal made by the Chief Executive.  It was certainly the case when President Obama’s 2014 fiscal year budget proposal was released, and it became evident that it would break some new ground with respect to retirement savings provisions.

The president’s proposal of a dollar cap on tax-advantaged retirement accumulations, and also a limit of 28 percent on any taxpayer’s benefit for income tax deductions and exemptions, were immediately criticized as hostile to the goal of saving for retirement.  Like many others, we were not especially pleased with these proposals, as they seemed to be a changing of the rules while the game is in progress.  However, the president’s 2014 budget contained a number of other provisions that could affect retirement saving, provisions that merit comment, too.  Here are our thoughts on some of them.

§  An automatic-enrollment workplace IRA program would be required of most employers that sponsor no retirement plan, that have been in business for two or more years, and have 10 or more employees.  The proposal includes a start-up credit for employers with 100 or fewer employees.   Traditional or Roth IRAs could be used, with a Roth IRA proposed as the default.  Some may see this as potentially siphoning off true “qualified plan” business, but to the extent that more workers at least begin saving in preparation for retirement, the industry and the nation as a whole benefit.  And, such a program could eventually lead an employer to establish a more traditional retirement plan.

§  Required minimum distributions would be waived for persons with aggregate IRA and employer plan balances that do not exceed $75,000.  This could be beneficial to many retirees who have other assets to help support them in retirement, and who want to preserve tax-deferred amounts until they are actually needed.  

§  Nonspouse beneficiaries would be allowed indirect rollovers between retirement plans and IRAs, and between IRAs.  “Inherited IRA” status would remain a requirement.  In the past, the inability of nonspouse beneficiaries to execute an indirect rollover has been a trap that has caught—and cost—many.  An indirect rollover option would also allow nonspouse beneficiaries to “split” pre-tax and after-tax portions of inherited employer plan accounts when rolling them to inherited IRAs, something they now cannot do because of the present nonspouse beneficiary direct rollover requirement.

§  The maximum small employer retirement plan start-up credit would double from $500 to $1000 per year, and would be available for four years instead of three.  Anything that encourages employers to establish new plans, including tax credit incentives, is worthy of consideration.

§  Electronic capture of employer plan data could be expanded.  A provision of the president’s budget proposal would authorize the IRS to require that nondiscrimination testing data be included on electronically-filed Form 5500 plan returns.  The IRS seems intent on identifying retirement plans that have potential noncompliance issues, and requiring the annual submission of testing data would seem to be a step in that direction.  It would, at minimum, seem to necessitate revising some recordkeeping procedures and Form 5500 generating systems, which would be costs that participants would ultimately bear.  “Is this really necessary?” is the question we ask. 

§  E-filing of information returns could broaden.  The IRS would be given authority to set a threshold below the current 250 for mandatory electronic filing of information returns, including the 1099 and 5498 form series.  A maximum $5,000 penalty could be assessed for failure to e-file when required.  Yes, we live in an increasingly “wired” world, and electronic submission is increasingly more the rule than the exception for trustees and custodians that submit such forms.  But for those with limited filing numbers, the option to submit in paper format rather than deal with programming and software issues may still be valuable.

§  Five-year depletion of IRA and employer plan accounts by nonspouse beneficiaries would be required under the president’s proposed budget.  There would be certain exceptions, including beneficiaries with a disability, a chronic illness, minor status (reverting to five-year payout upon reaching the age of majority), and those whose age is within 10 years of the decedent.  While we recognize that IRAs and employer retirement plans are not primarily for the purpose of inter-generational wealth transfer, it seems that this provision takes away one of the few simple means of providing financially for family members after one’s death.  The concept is intended by lawmakers to raise revenues to finance other tax provisions, and should be recognized as such, rather than as some kind of noble tax policy.

It is highly unlikely that President Obama’s proposed budget will find its way into legislation and become law in its current form.  Given the split in control of the Senate and House, and the meager evidence of across-the-aisle cooperation, expectations for meaningful legislation in the 113th Congress are low.  Nevertheless, all laws begin as proposals, and elements from different sources can become assembled into legislative packages that find their way into law.  Therefore, serious scrutiny should be given to any proposals that could have an impact on retirement saving.

DOL Takes Next Step Toward Lifetime Income Rules

If we were to identify one message that towers over all others in the retirement savings realm, it would be that the typical American is saving far too little to assure a financially comfortable retirement.   We can talk all we want to about whether retirement plans offer the most prudent investment offerings, whether fees associated with these plans and the underlying investments are appropriate, and whether workers are being adequately educated to make the right investing decisions.  But the one critical thing that improvements in these areas will not alter is the fact that the typical participant is not saving enough to start with.

This inescapable truth is certainly one of the motivators for the current focus of lawmakers and regulators on providing plan participants and beneficiaries with projections of the resources they will have during the years after their retirement.  “Lifetime income streams” is the operative term, and the latest manifestation is the advance notice of proposed rulemaking (ANPRM) issued by the Department of Labor’s Employee Benefits Security Administration (EBSA), and published on May 8^th in the Federal Register.  This proposal and request for public comment describes the lifetime income projections EBSA is considering requiring on benefit statements provided to plan participants and beneficiaries.  They include projecting future retirement accumulations if a worker continues to save, as well as estimates of monthly income for life, based both on current retirement assets, and estimated assets with continued saving. 

Fear can be a great motivator, and fear of an impoverished retirement could well be the result of these lifetime income projections.  If it is demonstrated to workers that current balances or current retirement saving patterns cannot be counted on to produce assets that will last through retirement or sustain an individual’s lifestyle, it appears that EBSA’s hope is that this will be the motivator that leads workers to change their behavior and save more. 

One of the things a bit surprising about EBSA’s recent release was that it stopped short of the status of proposed regulations.  This, after EBSA had collected over 700 public comments since 2010 on how best to present lifetime income information to participants and beneficiaries.  Some speculate that by laying out the agency’s preferred options, while at the same time asking for comment on them, EBSA is casting itself as more responsive, perhaps avoiding criticism for issuing a set of rules without adequate opportunity for interested groups to respond.  We well remember EBSA presenting fiduciary definition regulations in October of 2010, only to withdraw them in November of 2011 in the face of heavy and organized opposition.  Perhaps EBSA wants to avoid a déjà vu experience.

One of the themes we are already hearing in industry responses is that it would be much simpler to require projections only over single life expectancy.  This, it’s being said, would make it unnecessary to track marital status in order to make projections over joint life expectancy for married participants, with further complexity if a 50 percent survivor benefit is required.  A single life projection would certainly be simpler.  But, given Congress’ and the Tax Code’s history of protecting spousal retirement benefits, this is a position I believe EBSA is unlikely to adopt.  Adding to this is the consideration that a lifetime income projection based on a single life expectancy would yield a significantly higher monthly benefit than if it were calculated over joint life expectancy with a 50 percent survivor benefit.  Such a projection would be out of sync with the combined life expectancy of—and assets needed by—a typical couple. 

At least one of the elements of EBSA’s release will likely be seen differently by various groups and can be seen as a mixed blessing.  It is the proposed flexibility to use either an EBSA-provided safe harbor, or—alternatively—a reasonableness standard, both when projecting potential future retirement accumulations, and converting current and potential future balances to monthly lifetime income.  Flexibility is always appreciated in our industry.  The ability to use projections, calculators and methods that some have already developed and are using will be appreciated.   On the flip side, if one plan uses the EBSA-provided safe harbors and another plan uses “reasonable” assumptions for contributions, interest rates, mortality, etc., then similarly situated individuals could have lifetime income projections that differ, potentially greatly.  This could invite plan-to-plan comparisons that may be misleading, and leave participants or beneficiaries believing that one plan’s investment performance is superior, when in fact this may not be so.  It will be interesting to see the responses EBSA receives related to this part of their proposal.

EBSA has not indicated when it intends to act upon the responses received during the public comment period that ends July 8, 2013. The agency has suggested the possibility that it might stop short of issuing actual regulations on lifetime income streams if it can find an alternate means of achieving its objective. However, it seems highly unlikely that EBSA would willingly allow a purely voluntary delivery of lifetime income projections to plan participants and beneficiaries.  More to come on this as it will continue to be an area of focus in the coming months and years.

PBS Frontline Presents "Fuzzy" Retirement Plan Picture

In today’s world of ever-expanding communication channels, both formal and informal, the lines between journalism, opinion and entertainment are increasingly becoming blurred.   The Public Broadcasting System (PBS) television “documentary” The Retirement Gamble, aired on April 23^rd on many PBS stations, is a good example of this. 

“Documentary” is in quotes here because in my opinion this presentation did not live up to the standards of the balanced journalism one would expect of PBS.  Rather than a presentation of information and facts, which is what a documentary is generally thought to be, this was an uncharacteristically simplistic, soap opera-like, and—least pardonable—unbalanced and biased program with an apparent agenda.  Two of its primary sources of information were academics who are well-known foes of 401(k) plans, and of plan participants being responsible for directing their own investments.  While Frontline did present interviews from some highly-placed persons at several investment firms that are significant players in the retirement industry, it seems they chose very small portions of the interviews to televise that were  intentionally designed to make these individuals look unsure and ill-informed.  We also know that others in the retirement industry were interviewed at length but Frontline chose not to present those interviews and that side of the retirement story.  It appears that interviews that presented ideas, suggestions or conclusions contrary to the program’s agenda, were not included.  Definitely not an unbiased or balanced approach. 

A main take-away for the typical viewer is likely to be that American workers will have inadequate retirement assets because they are being fleeced by the mutual fund industry, through fees charged for their investments.  Another impression may be that there is no meaningful oversight by regulatory agencies charged with protecting the interests of workers who save for retirement, something that recent DOL and IRS regulatory history would tend to refute.

It would be unbalanced on my part to claim that there are never conflicts of interest in the retirement plan investment, service and administration environments.  We live in a largely for-profit, capitalistic world, where personal gain is a driving force in the economy of our country and other nations.  Human imperfection being what it is, there are occasional abuses.

Sometimes, however, what one man portrays as abuse may be another man’s reasonable reward for his efforts, time and talent.  Portraying issues in black and white terms is convenient when trying to win a debate, support a thesis, or sway audience opinions.  But such clear distinctions are not so common in the real world.  As journalist and essayist H. L. Mencken put it, “For every complex problem there is a simple solution, and it’s wrong.”

That said, there is certainly a place for seeking—for mandating—honesty and fair dealing, especially in environments where the in expertise of others—such as a retirement investor—makes them vulnerable to being misled and taken advantage of.  But, rather than the unregulated, exploitative plan administration and investment environment that Frontline presents, we and others in the industry believe we are moving steadily in a direction that protects the retirement plan participant.  This is happening through regulations addressing fee disclosure, investment performance, investment advice, automatic employee enrollment, and more importantly, a genuine desire on the part of many retirement professionals to help participants achieve a secure retirement.

Some may argue that in a perfect world a retirement plan participant would be able to invest his or her retirement plan contributions without any sales charge, advisory fee, marketing fee, surrender charge, or expense of any kind.  But that world does not and cannot ever exist.  In such a world there would be no incentive for professionals in the investment and retirement industries to provide the services and support that plans and plan participants need.

Also not stated by Frontline was the fact that there are fees associated with investments outside of retirement plans, whether they are mutual funds, annuities, or some other investment vehicle.  Charges are not unique to retirement investing.  The reality is that investing through one’s retirement plan often results in lower charges due to the types of investments, share classes, and volume of dollars being invested.   No less important, there can be equally great—or greater—undesirable long-term consequences for not investing at all, or investing too conservatively. 

Are 401(k) plans as they exist today the perfect solution to a secure retirement for all Americans?  Perhaps not perfect, but they are an extremely valuable and beneficial tool.  A secure retirement, like employment, health, personal happiness, and many other things, has never been a guarantee.  In the absence of a government-mandated or operated retirement system, American workers must use the tools available to them.  Can we sharpen those tools, or add new ones to our tool kit to do the job better?  Yes.  But it’s important that we not fail to appreciate and properly use those tools available to us now, as we work toward perfecting them.

President Obama’s Retirement Saving Surprise

As the contents of President Obama’s 2014 fiscal year budget proposal were revealed, it became evident that it would break new ground with one of its provisions for retirement saving.  Most attention-grabbing was a plan for a per-taxpayer retirement accumulation cap, tied to a projected future benefit.  The motive for this is to generate revenue by limiting tax-advantaged saving.  Put simply, you or I would not be permitted to accumulate combined IRA and employer plan assets greater than an amount which—when applying an actuarial formula—would yield an annual payout at retirement age greater than the maximum that can be paid out from a defined benefit (DB) pension plan.  That limit is $205,000 for 2013.  The amount would be indexed to inflation, as is the maximum annual DB plan benefit. 

There are administrative complexities to this proposal, to be sure, such as determining when a taxpayer’s limit has been reached, the effects of investment gain or loss on contribution eligibility, consequences of breaching the cap with an otherwise-eligible contribution, and more.  But, beyond such details is the larger issue of the philosophy behind it, and the consequences—intended and otherwise—of such a proposal.  

Philosophically, should government be telling taxpayers how great or how limited their assets should be upon entering retirement?  Taxpayer circumstances differ greatly, as do their commitments, responsibilities and aspirations, both during working years and upon actual retirement.  The assets needed to meet these responsibilities and realize these aspirations must naturally differ, too. 

The counter-argument is likely to be that everyone is free to save as much for retirement as they are able to, but may have to do it without the benefit of a tax Code incentive, which tax-preferred retirement saving programs give them.  While this may sound reasonable, the reality seems to be that without tax incentives retirement savings suffer.   For example, many will recall the Taxpayer Relief Act of 1986 (TRA-86) and the restrictions it placed on Traditional IRA deductions.  Those participating in an employer-sponsored retirement plan, or who were married to someone who was,  had to consider their income when determining their eligibility for a deductible IRA contribution. IRA contributions fell by about 50% in one year starting with the first year tax incentives were not available.  This seems to be pretty clear and convincing evidence that tax incentives do matter.

While the TRA-86 changes resulted in less savings, at least the changes were prospective ones  that did not penalize taxpayers for past saving behavior.  The president’s proposal can be viewed as penalizing past behavior, in effect asking many who have saved diligently and invested well to recalibrate the vision they have for retirement.  While others who are similar in age, income, profession, or some other parameter can continue to save the maximum amounts permitted under the Internal Revenue Code, those with larger accumulations will be required to stop saving in a tax-advantaged manner.  The rules will have been changed in the “middle of the game” for many who have played the game fairly and well. 

There is also the matter of employer incentives for maintaining retirement plans, which benefit many thousands of rank-and-file workers who may never accumulate enough to be affected by the proposed cap.  When an employer reaches the maximum accumulation and must restrict future contributions, will he or she continue to sponsor a plan that only benefits the rest of the workforce?  And what about the loss of capital formation, which is the outcome of saving of all kinds?  While the largest share of U.S. retirement assets are now in capital-rich IRAs, the lion’s share did not originate as IRA contributions, but as contributions to employer-sponsored plans, whose balances were ultimately rolled over to IRAs.  The employer-sponsored plan is the goose that has laid many golden eggs.

It is unlikely that President Obama’s complete budget proposal will be accepted as-is, or will progress to legislation and become law in current form.  The Republican-led House and Democrat-led Senate have adopted their own budgets, neither of which matches the one proposed by President Obama.  Following hearings on the president’s budget by each body, compromise is inevitable if any budget resolution is to be adopted; there may not even be a consensus budget achieved this year. 

Nonetheless, laws begin life as proposals, and “parts” from multiple sources can become assembled into a legislative whole sometimes unrecognizable in its origins.  Not entirely unlike sausage making, as the saying goes.  Now is the time to make sure that the budget ingredients are not harmful to the mission of encouraging retirement saving.  Harmful, as we believe this particular ingredient to be.   

What Can We Expect From DOL’s “New Sheriff in Town?”

Whenever there is a change in the senior leadership of any organization, there is a period of uncertainty.  This is true in both the private and public sectors.  At such times it can be unclear whether the status quo will be maintained, or if major change in direction will occur.  President Obama’s recent nomination of Thomas Perez to succeed the departing Hilda Solis as Secretary of the Department of Labor (DOL) leaves my headline question unanswered for the moment.   

First, of course, comes Mr. Perez’ confirmation, and it is already clear that some Senators have a some concerns with him.  Perez currently serves as Assistant Attorney General for the U.S. Justice Department’s Civil Rights Division.  Among his critics, long-time Iowa Republican Senator Charles Grassley has threatened to oppose Perez’ nomination over allegations that he used his department’s influence to keep a potentially important housing discrimination case from going to the U.S. Supreme Court.  Others have expressed the opinion that he has leaned toward lax enforcement of immigration rules.  It remains to be seen how the nomination will proceed through Congress.

But what is of most immediate interest to the retirement industry is the direction that DOL may take on employee benefits in 2013 through 2016, during the remainder of President Obama’s second term.  Perez’ predecessor Solis’ pre-DOL experience included four terms as a California congresswoman, and featured a focus on labor issues.  Perez’ record of public service has had a focus weighted more heavily towards immigration and civil rights issues. 

This does not mean that he doesn’t or cannot grasp labor issues, but they do not appear to be his forte.  If this is an accurate assessment, then it would not be a huge surprise if Perez vision in a DOL leadership role—again, if confirmed—might logically be influenced by 2^nd term holdover Phyllis Borzi, Assistant Secretary for the DOL’s Employee Benefits Security Administration (EBSA).  I think it if fair to say that Borzi is considered to be among the more aggressive of recent EBSA leaders in advancing an agenda that places greater compliance demands on retirement plan sponsors and industry service providers.  For example, she is believed to be an advocate for a fairly broad definition of “fiduciary,” including applying these rules to the IRA environment, something that is an item of concern for many in the financial industry and on Capitol Hill.

It is not the case that retirement industry players are anti-compliance.  But there are fears that some of the directions EBSA might take would add compliance complexity and cost, without significant benefits to retirement plan participants—or IRA savers for that matter.  If Perez is confirmed, it is hoped that he will become familiar with the turf on both sides of the compliance fence, and will not adopt an adversarial and litigious attitude in the mistaken belief that this is in the best interest of U.S. workers and retirement savers.