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