Retirement plan managers and advisors are praising proposed changes in plan investment advisor rules, but others say the proposal would be too hard on employee stock ownership plans (ESOPs).

The Employee Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, released the proposed investment advisor fiduciary rule in October.

The proposed rule, 2010-26236; 29 CFR Part 2510, would amend a section of the Employee Retirement Income Security Act (ERISA) that defines when a person who provides investment advice becomes a fiduciary.

Today, to qualify as a plan fiduciary, a person must either have control or discretionary authority over plan investments, or the person must meet a 5-part test described in a 1975 regulation. The person must give advice on a regular basis, have some kind of agreement or arrangement with the plan or a plan fiduciary and provide individualized advice.

The proposed rule would expand the definition of plan “fiduciary” to include any person that provides investment advice to plans for a fee or other compensation.

The proposed rule also includes a provision that would classify appraisers of the employer stock in ESOPs as fiduciaries.

ESOP stock appraisers should be fiduciaries, because many enforcement cases involve incorrect valuations of employer stock in ESOPs, EBSA officials say in a preamble to the proposed rule.

Comments are not due until Jan. 20, 2011, but a few employer benefits managers and plan advisors have submitted comments.

The benefits managers and plan advisors who have commented so far say tighter rules could help make life easier for employers and plan participants, but reducing the sense that the people seeking to advise participants have hidden motives for their recommendations.

Tobin Ruhde, a controller for Latitude Corp., Verona, Wis., says the current solution – paying extra for a plan that handles some of the fiduciary responsibility – adds what should be unnecessary costs.

“It is extremely frustrating to be obliged to offer a low-cost 401(k) plan to our employees, accept full fiduciary responsibility and

at the same time rely on broker-dealers for advice on fund selection knowing they have a financial interest in the funds chosen and currently have little legal responsibility to do what is best for the participant,” Ruhde says.

If the brokers are doing their jobs, plan administrators should not have to pay extra for someone else to assume fiduciary responsibility, Ruhde says.

Rafael Zimberoff, manager of Z-Firm L.L.C., Seattle, says the plan he manages is under-served on the investment side because he cannot identify reliable sources of advice.

“The opacity of their compensation schemes is shocking,” Zimberoff says. “‘There is no fee for this service,’ and every other line in the book. We show them the door, because we don’t even know where to start.”

Paul Kampner of TMark Associates Ltd., Chicago, a plan consultant, has recommended that EBSA expand the fiduciary definition further to include those who offer target-date funds to plans.

“While the plan sponsor is a fiduciary and has ultimate responsibility for the selection and monitoring of all fund options (including target date funds), I don’t believe they understand their responsibilities when it comes to these funds,” Kampner says. “Most of the time there is no analysis at all of the fund. It is simply chosen because it is offered by the record keeper or administrator of the plan that has a vested interest in the fund selected. Since the vast majority of these funds are fund-of-funds exclusively invested in the proprietary funds of the target date fund manager, there is an inherent conflict of interest.”

Anthony Agbay, a Troy, Mich., financial advisor, has asked EBSA to impose cost disclosure requirements on marketers trying to get plan participants to roll assets out of the plans.

Rollover marketers often get participants to roll assets into plans with higher commissions, higher internal costs and higher transaction fees, Agbay says.

The rollover cost illustration “should include first year costs and any longevity expenses associated with such recommendations,” Agbay says. “Moreover, the disclosure should be required not only by the advisor on the plan but by others within the same broker-dealer or referrals made by the advisor to other professionals who receive direct or indirect compensation. This will help alleviate internal and external referral programs aimed at mining the assets of the participants including but not limited to insurance, estate planning (wills and trusts), etc.”

Several commenters have argued that the ESOP stock appraiser fiduciary requirement would make ESOPs even harder and more expensive to run.

“Fiduciary status is not the answer unless your intent is to destroy small ESOPs,” says Peter Wilhelm, a Falls Church, Va., enrolled agent. “Increased penalties for erroneous appraisals may be a more reasonable approach.”