More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The volume of retirement assets rolling out of defined contribution plans has gotten the Department of Labor’s ERISA Advisory Committee’s attention.
IRAs, along with other investment vehicles that fall outside the jurisdiction of ERISA’s oversight, are growing more popular as boomers retire and move their retirement savings out of employer-sponsored plans.
In response, the ERISA Advisory Council this week said it plans to examine some of “the factors leading participants to leave their assets in or move them out of a plan.”
Its inquiry also will look into the habits of retirees moving out of defined benefit plans. IRAs often impose fees that are higher than those seen in 401(k) plans.
The council’s notice suggests that the Department of Labor wants to know whether the existing regulatory structure governing employer-sponsored plans is affecting how retirement assets are rolled over.
As part of its work, fees on assets, the range of investment options offered to enrollees, the ultimate extent of investors’ personal control, and the consequences of sponsors’ fiduciary obligations on investment decisions will all be explored, according to a statement from the Advisory Council.
The council also wants to better understand how existing regulations affect asset movements when workers change jobs, and, ultimately, how the choice to liquidate employer-sponsored retirement plans is weighed by individuals.
Understanding when asset rollovers are in the best interest of individuals — and when they are not — will shed light on whether there are “positive steps that can be taken to further encourage individuals to stay in the system if it makes sense for them to do so,” the council said in its statement.
The council said it will examine what employer are communicating to workers when they leave their jobs and “whether the quality of the participant’s decision-making can and should be enhanced by communication or other plan design features from the plan sponsor.”
“While the plan sponsors may (or may not) have an interest in keeping participants’ assets in the plan ... they may be reluctant to provide meaningful communication to the departing participant out of concern for potential fiduciary liability,” it said.
According to Boston-based research firm Cerulli Associates, $324 billion was rolled into IRAs last year, an increase of 17 percent over the previous year and up about 60 percent over the past decade.
IRAs today hold $6.5 trillion, more than the $5.9 trillion in 401(k)-style accounts.
A recent Bloomberg investigation found that former employees at major companies such as Palo Alto, California-based Hewlett-Packard Co. and United Parcel Service Inc., as well as AT&T, have complained that sales representatives lured them into rolling over their 401(k) nest eggs into unsuitable IRA investments. The investigation was based on interviews with retirees and brokers, confidential arbitration records and other documents, Bloomberg said.
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