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September 19, 2011 at 08:00 PM
WASHINGTON BUREAU — The U.S. Department of Labor says it will re-do efforts to update the definition of fiduciary it uses in dealings with retirement plans governed by the Employee Retirement Income Security Act (ERISA).
The department says it expects to re-issue the proposed rule in early 2012.
Phyllis Borzi, director of the Employment Benefits Security Administration (EBSA), an arm of the U.S. Labor Department, says EBSA expects to make it clear in the revised update proposal that “fiduciary advice is limited to individualized advice directed to specific parties.”
EBSA will keep the definition from applying to routine appraisals, and it also will clarify and limit how the definition would apply to arm’s-length commercial transactions, such as swap transactions, Borzi says.
EBSA also will work on exemptions that should address concerns about the impact of the revised definition on brokers’ and advisors’ current fee practices, Borzi says.
Borzi notes in a statement that exemptions have let brokers receive commissions in connection with the sale of stocks, mutual funds and insurance products to ERISA plans.
EBSA “will carefully craft new or amended exemptions that can best preserve beneficial fee practices, while at the same time protecting plan participants and individual retirement account owners from abusive practices and conflicted advice,” Borzi says.
Critics of the current definition say it is so narrow that it could exclude wrongdoers who have clearly swindled plans or plan participants by acting in what appeared to be a fiduciary role. Critics of the proposed EBSA revision of the definition that was just withdrawn say it was so vague that it could have turned companies or individuals who had no intention of becoming fiduciaries into accidental fiduciaries, and that, in some cases, the revised definition could have prohibited ordinary plan operations, such as efforts to use swaps in plan risk-management arrangements.
The Labor Department acted under intense, bipartisan pressure from Congress.
