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August 17, 2012 at 09:13 AM
Drinker Biddle & Reath on Thursday held the first of a series of conference calls for advisors on regulation, discussing the controversy over proposed brokerage window rules and how the election could affect the fiduciary debate.
Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath, said on the call that the firm’s “Inside the Beltway” calls will likely be a quarterly event.
Thursday’s call focused on the Department of Labor’s proposed fiduciary requirements regarding brokerage windows. Question 30 on a controversial Field Assistance Bulletin (FAB) had made several statements that “immediately generated reaction from the private sector,” Reish said.
The bulletin, which was released on May 7, contains a number of controversial statements, Reish said. First, it states that “[a]lthough the regulation does not specifically require that a plan have a particular number of designated investment alternatives, the failure to designate a manageable number of investment alternatives raises questions as to whether the plan fiduciary has satisfied its obligations under section 404 of ERISA.”
Second, the bulletin states that if “significant numbers of participants and beneficiaries” select nondesignated investment alternatives, plan fiduciaries have an “affirmative obligation” to determine whether it should be treated as a designated alternative.
Finally, if a plan holds more than 25 investment alternatives, the DOL will only require that fiduciaries make the necessary disclosures for at least three of the investments. Fiduciaries would also have to make disclosures for investments that have at least five participants and beneficiaries.
Question 30 is a “good example of how the Department of Labor has become activist,” Brad Campbell, a lawyer with Drinker Biddle and former head of the Employee Benefits Security Administration (EBSA), said on the call.
“Part of the bipartisan backlash [against Q&A 30] is due to the process used,” he added. The guidance went “against the tenor” of rulemaking. “You don’t want rapid action in rulemaking. You want a process where people can respond.”
Two months after the DOL issued the bulletin with the contentious Question 30, they issued a revised bulletin, FAB 2012-02R, that eliminated the question and replaced it with Question 39, Reish said.
