DOL Continues to Refine ERISA Rules and Regulations

The Department of Labor has issued many new rules governing retirement plans over the past few years, but its work is hardly done, Michael Davis, Deputy Assistant Secretary for the department’s Employee Benefits Security Administration (EBSA), told participants at the 2012 SVIA Fall Forum.

Davis recited a list of his agency’s recent rulemaking accomplishments, including issuing proposed regulations that would require additional disclosures about target-date funds, and developing new rules for disclosing retirement plan expenses. He also discussed four key initiatives still on the agency’s plate:

Providing guidance to fiduciaries on selecting and monitoring target-date funds.
As it has sought to develop guidance on selecting and monitoring target-date funds, Davis said EBSA has had to think hard about who its primary audience will be and how sophisticated it is in terms of understanding the investment markets. “We have determined that it really is better to write to that broader audience, that smaller business audience, because these are folks who in a lot of cases don’t have staff that are dedicated to these types of questions,” he said. “We are toward the latter part of this project and we hope to issue something pretty soon.”

Providing more guidance on how fee disclosure requirements should apply to brokerage windows within defined contribution plans.
Davis said EBSA has been concerned to hear that some plan advisors are advising clients they can avoid fee disclosure rules by having all plan investments routed through a brokerage window. That approach apparently grew out of an answer to a question EBSA had included in a list of “frequently asked questions” it published. “That was obviously a problem for us,” Davis said. “We did not intend for that to happen.” “We thought we had a very strong position with respect to what we prescribed both as a legal matter and a policy matter,” Davis continued. “That said, we thought people made a very persuasive argument that we needed to take a broader look at this issue, that it did not lend itself to just an FAQ, and that we should have a broader public comment process with respect to brokerage windows. We did that, and we provided an answer to what is now Question 37 which basically says if you are putting in a brokerage window to evade disclosure rules, that is highly problematic. We also said it is a fiduciary matter as far as the selection and monitoring of brokerage window providers. And we said we will have a broader conversation about brokerage windows going forward to make sure that whatever the department does is thoughtful, is considerate, and is timely with respect to the way brokerage windows are being used.”

Issuing new regulations that further define who qualifies as a fiduciary to a retirement plan.
The push to redefine who qualifies as a fiduciary to a retirement plan, Davis said, stems largely from a shift in the types of plans most employers now offer. When the Employee Retirement Income Security Act was passed in 1974, most plans were defined benefit plans. Today, defined contribution plans are more common, and account for more retirement assets. Accordingly, knowing who’s providing advice to those plans, and what their qualifications and responsibilities are, is increasingly important. “We knew it was going to be a robust debate with a lot of comments and passions on both sides,” Davis said. “Do we need stronger fiduciary protections, yes or no? If so, how should they be delivered? What’s the regulatory model for delivering it? How should we work with our colleagues at the SEC and others to make sure we deliver a seamless system? All those questions are questions that occupy us on this project every day.” Davis said EBSA is working closely with the SEC to make sure it doesn’t create a suite of rules that aren’t harmonious with rules from other regulators.

Helping retirement plan sponsors and plan participants do a better job of converting retirement savings into lifetime income.
The challenge of converting retirement savings to retirement income is becoming increasingly important, Davis said, as the 76 million Baby Boomers born between 1946 and 1964 begin leaving the workforce. “We have had a hearing with Treasury on this, and we are now in the formative stage of steps we are going to take,” Davis said. One of the possibilities regulators are considering, Davis said, is requiring plan sponsors to issue retirement plan statements that show not only actual balances in 401(k) accounts, but also what those balances would equal if they were paid out in monthly installments, such as those that could be taken from an annuity. But it’s not a simple issue, he noted. Some retirement experts wonder if doing this would encourage or discourage retirement savings. And assumptions would have to be made in calculating what the monthly benefits would be. “Even the use of the word ‘annuity’ is a debate,” Davis observed. “Some say you shouldn’t pay it out in an annuity format but as a drawdown from an asset allocation product. We are working to resolve these debates. To use a baseball analogy, we are in the eighth inning of a nine-inning game in getting the pension benefit statement rules out, and we hope to get them out soon.”

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