WASHINGTON BUREAU – James Klein today visited Capitol Hill to continue the battle against a looming “accidental fiduciary” problem.
The U.S. Department of Labor has proposed a definition of the term “retirement plan fiduciary” that is far too broad and could expose plan service providers to the risk of becoming plan fiduciaries without intentionally agreeing to take on fiduciary responsibility, Klein warned lawmakers.
If implemented as written, the definition could inhibit efforts to provide investment education and guidance for plans and plan participants, raise plan costs, and reduce the number of service providers willing to offer participants investment education and guidance, Klein testified.
The “increased cost and confusion attributable to the proposed regulation is a source of significant concern for our plan sponsors,” Klein said.
Klein, president of the American Benefits Council, Washington, spoke at a hearing organized by a subcommittee of the U.S. House Education and Workforce Committee.
The subcommittee organized the hearing to look at the challenges facing retirement plan sponsors, workers and retirees.
The Labor Department began drafting a new plan fiduciary definition that has been in place since the 1970s. Critics of the current definition say it is so narrow that it excludes many wrongdoers who have clearly swindled plans or plan participants by acting in what appeared to be a fiduciary role.
Some believe, incorrectly, that the Labor Department’s proposed update of the definition would affect only retirement plan service providers, or that concerns about the definition would primarily involve individual retirement accounts (IRAs).
“That is not the case,” Klein said, according to a written version of his remarks provided by the committee. “The proposed regulations raise very serious issues for plan sponsors.”
Members of Congress should help employers tell the Labor Department about “the dangers inherent in an
overly broad proposal that does not fully take account of ramifications that could raise costs or otherwise chill employers from offering plans in the first place,” Klein said.
The draft definition states that an individual can become a fiduciary by providing any kind of investment information that “may be considered” by a plan participant, Klein says.
The draft provision also could lead to fiduciary status for a provider of valuation services, securities management services, or legal advice or other advice that relates to securities matters but is not investment advice, Klein said.
Under the Employee Retirement Income Security Act (ERISA), a plan fiduciary relationship “is a very serious relationship with the highest fiduciary standard under the law,” Klein said.
A plan fiduciary is supposed to put the client’s interests first.
“Fiduciary status should not be triggered by casual discussions but only by serious communications that reflect a mutual understanding that an adviser/advisee relationship exists,” Klein said.
If the current version of the rule is adopted, plan sponsors will have to tell human resources departments and call centers never to discuss investments in any manner, Klein said.
“This would hurt and frustrate participants, which is the last thing that plan sponsors want to do,” Klein said.