WASHINGTON BUREAU — Many parts of a U.S. Department of Labor fiduciary definition proposal are dangerously ambiguous, according to a retirement services vendor executive.
Charles Nelson, president of Great-West Retirement Services, Greenwood Village, Colo., made that argument recent during a U.S. Department of Labor (DOL) hearing on an effort to update the department’s “5 part test” for determining whether a retirement plan advisor should be treated as a plan fiduciary.
Labor Department officials – and many of the retirement services industry critics of the proposed definition update – say the current 5-point test ends up excluding many service providers who clearly are fiduciaries.
But retirement services trade groups say the proposed replacement definition is so broad that vendors could become fiduciaries entirely by accident.
If adopted, the proposed fiduciary definition will “set the retirement industry back 25 years,” by dramatically increasing 401(k) plan sponsor and plan participant costs, Nelson said, according to a transcript provided by the Labor Department.
“We believe that the DOL dramatically underestimated, or in the case of IRAs, did not estimate at all the cost of the proposal and its unintended consequences, while overestimating the benefits of the proposal,” Nelson said.
Another witness, Ken Bentsen, an executive vice president at the Securities Industry and Financial Markets Association, New York, testified that the proposal “would reverse 35 years of case law, enforcement policy, and the understanding of plans and plan service providers.”
There is no legislative mandate forcing such a radical change, and the Labor Department should not be trying to apply to fiduciary definition to individual retirement accounts, because it has no enforcement authority over IRAs, Bentsen.
The proposed new definition seems to be in conflict with provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act that gives the Securities and Exchange Commission the authority to impose a uniform fiduciary standard on sales of investment products, Bentsen said.Other retirement plan fiduciary coverage from National Underwriter Life & Health: