WASHINGTON BUREAU — Bradford Campbell, the former head of the Employee Benefits Security Administration (EBSA), says the U.S. Department of Labor should overhaul its retirement plan fiduciary definition proposal.
“This is a big issue,” Campbell said today here at a seminar on pension risk that was organized by Federated Investors Inc., Pittsburgh (NYSE:FII), and Hartford Financial Services Group Inc., Hartford (NYSE:HIG).
Campbell, who was the assistant Labor secretary overseeing EBSA from 2007 to 2009, is now of counsel in the Washington office of Schiff Hardin L.L.P.
A plan fiduciary is an individual or company with a legal obligation to put the plan’s interests first.
EBSA has been trying to update a plan fiduciary definition that was created back in the 1970s. Critics of that definition say the multi-part test included in that definition excludes some wrongdoers who clearly have been acting in what plan sponsors or participants believe to be a fiduciary capacity.
Critics of the proposed definition that EBSA recently drafted for the Labor Department say it is so broad and so vague it could turn almost any individual or company that helps a retirement plan or plan participant into an accidental fiduciary.
Labor Department officials have been talking about completing work on the definition before the end of the year, then giving providers a long time to comply and making any changes that appear to be necessary.
Giving providers extra time to comply with a new definition that resembles the proposed definition is not good enough, Campbell said.
“You have to know when you hire a service provider whether they become a fiduciary or not, and this regulation does not clarify many of the changes,” Campbell said. “This regulation is not clear…. I don’t believe anyone can sit down and run a hypothetical plan for a year under this rule and determine whether the service providers you currently have are fiduciaries or not.”
Implementing the proposed rule as is would lead to dramatic changes in an industry that is managing $5 trillion using a definition that has been in place for about 35 years, Campbell said.
Campbell cited a section in the proposed regulation that would classify providing “management advice” as a form of conduct that would make an individual or company a plan fiduciary. The proposed definition never defines the term “management advice,” he said.
The provision includes advice about proxies and advice about selecting a fund manager. “But, what else is included, we don’t know,” Campbell said. “It is such a fundamental issue. When you hire a service provider you have to know whether they become a fiduciary or not.”
The U.S. Securities and Exchange Commission (SEC) also is developing regulations involving the fiduciary concept. The SEC and the Labor Department are talking about coordination, but there is a difference between two agencies talking and two agencies actually working together, Campbell said.
“It is important that the big picture fits together,” Campbell said. “I am concerned that there is not sufficient coordination between the two agencies on this issue.”