Financial services industry providers today asked the U.S. Department of Labor to treat them as retirement plan fiduciaries only if they agree in writing to be plan fiduciaries.
Provider representatives, consumer group representatives and others came together today for a U.S. Department of Labor hearing on efforts to update Employee Retirement Income Security Act (ERISA) retirement plan fiduciary rules.
The Employee Benefits Security Administration (EBSA), a Labor Department arm, has been working on updating the definitions of “fiduciary” and “investment advice.”
EBSA received 199 written comments on its work and 39 requests from individuals and groups that wanted to participate in the hearing.
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Witnesses appeared on behalf of consumer groups such as AARP, Washington, and the Pension Rights Center, Washington; individual companies, such as Fidelity Investments, Boston, and Great-West Retirement Services, Greenwood Village, Colo.; and trade groups such as the American Council of Life Insurers, Washington, and the Insured Retirement Institute, Washington.
THE 5-PART TEST
Plan fiduciaries have a legal obligation to put the interests of the plans and plan participants they serve ahead of their own.
Today, when regulators are deciding whether a service provider can be treated as an ERISA plan fiduciary, they first check to see whether a person has control or discretionary authority over plan investments.
If not, regulators apply a 5-part test first described in a regulation released in 1975, before 401(k) plans existed.
The service provider 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 draft rule released by EBSA rule would expand the definition of plan fiduciary to include any person that provides investment advice to plans for a fee or other compensation.
Norman Stein, a senior policy consultant at the Pension Rights Center, Washington, testified in favor of replacing the 5-part test with a broader definition.
ERISA itself defines “fiduciary” to include anyone who “renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so,” Stein said, according to a written version of his testimony provided by the Pension Rights Center.
Regulators narrowed the definition improperly in the 1975 regulation, Stein said.
Since 1975, service providers have shifted from advising sophisticated defined benefit pension plan fiduciaries to advising 401(k) plan participants who, in many cases, have only rudimentary financial literacy, Stein said.
The importance of provider fiduciary status grew in 1993, when the U.S. Supreme Court ruled that an ERISA plan participant who loses money can sue only if a fiduciary’s breach of duty caused the plan a monetary loss, Stein said.
Stein said he believes that even non-individualized advice should be