DOL’s Borzi: Industry Backlash on Fee Rules Is Unfounded

In its recent Field Assistance Bulletin providing guidance to help plan administrators and service providers comply with the requirements of new rules, Borzi said the department was “trying to reiterate that a brokerage account or window is not a designated investment alternative (DIA); that’s not groundbreaking.” What the department is concerned about, she said, is disclosure.

She said the guidance reiterated another point, “again not new … that a plan fiduciary needs to prudently select and monitor service providers. So once you choose a service provider you can’t just walk away.”

Added Borzi: “You need to look at what people are actually selecting because you have to tell them what the fees are associated with that. It is entirely possible that many in the industry haven’t captured that information. But if you’re going to give people these kinds of choices and fulfill your fiduciary duty, you can’t just set it and forget it.” 408(b)2, which was published on Feb. 3 and becomes effective in July, requires, in part, that certain covered service providers furnish specified information to plan administrators so that they in turn can comply with their disclosure obligations to participants. As plan sponsors “get the information first” about the fees they pay, Borzi said, “there will be some sticker shock.” She added that the department is “not naive enough to think” that both fee-disclosure rules will be “smoothly implemented.”

Coming Out Soon: Lifetime Income Illustration, Target Date Fund Guidance

As part of its joint effort with the Treasury Department on how to best integrate lifetime income products into 401(k) and other types of employer sponsored retirement plans, Borzi said DOL is “optimistic” that it will soon seek comment on a “lifetime income illustration.”

The lifetime income illustration would be contained in the pension benefit statements and could show participants the amount of money they would receive per month—as an annuity defined-benefit like payment, not lump-sum cash-out—at retirement. EBSA is currently considering whether it should show an estimate of the monthly allotment based upon one’s current savings balance, or on a projected account total at retirement.

In collaboration with the SEC, Borzi said DOL also hopes to release soon a “simple guide” for fiduciaries on what to look for in a target date fund. “Ordinary people, which includes plan sponsors, don’t understand jargon,” she said. “We’ve spent hours trying to get this guidance into a form that people can understand.”