Commenters Weigh in on EBSA Fiduciary Proposal

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.”