In testimony October 28 before the Senate Special Committee on Aging, Phyllis Borzi, assistant secretary of labor for the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA), said DOL is considering a number of initiatives to assist plan fiduciaries and participants and beneficiaries in understanding the benefits, risks, and costs of plan investment options, including target date funds. An estimated 75% of 401(k) plans offer so-called lifecycle or target date funds as investment options for retirement plans. Borzi said that DOL is considering what disclosures should be made about target date funds and is re-examining DOL’s QDIA regulation to ensure that meaningful disclosure is provided to participants when the plan’s default investment is a target date fund. DOL is also considering, she said, whether it can assist plan fiduciaries by providing more specific guidelines for selecting and monitoring target date funds for their plans, whether as a default investment or more generally as one of several investment options offered by the plan. DOL also intends to withdraw the final rule implementing the investment advice provisions of the Pension Protection Act of 2006 (PPA) and accompanying class exemption that the DOL published in January 2009, Borzi said. “We intend to issue a new proposed rule that will support affordable and unbiased investment advice for 401(k)-type plans and IRAs.” The new rule, she said, “will provide participants access to quality investment advice that will assist participants in choosing investments, including target date funds.”
Reish & Reicher, a firm which specializes in employee benefits law, said in its most recent bulletin that it is seeing an increasing number of claims filed against advisors–both as civil lawsuits and FINRA arbitration cases. The firm notes that while “the increase in claims undoubtedly reflects the recent stock market losses, it is also the result of at least three other factors.” Those are: an increasing awareness of the fiduciary standard; the growing focus on retirement savings, including rollovers to IRAs; and heightened expectations about the performance of advisors. There is, Reish & Reicher said, a fourth category: “crooks who steal money.” Some of the claims that Reish & Reicher says it has seen include: encouraging employees to take early retirement or in-service distributions from retirement plans, and then investing the money in alternatives that are significantly more expensive than the investment expense in the plan; encouraging elderly people to invest, either individually or through their IRAs, in illiquid and expensive investments, some of which have become worthless; recommending investments that are “guaranteed” to return unrealistic amounts, for example, 10% per year or more in annual distributions from income; and the negligent recommendation of providers who subsequently embezzle funds from the plan, or otherwise cause avoidable losses to the plan.