My recent blog post, Risk Management: “Your Client’s 401(k) Plan and the F-Word, was written in response to a Greenwald & Associates survey, reported in this publication, finding that the Department of Labor’s expected redefinition of fiduciary would lead many small businesses to drop their retirement plans or matching contributions. Further research reveals the spin machine hard at work. (Due to FINRA constraints I cannot link to the survey here, but it can be found with a Web search.)
Part of a question on Page 23 of the survey states: “The Department of Labor is considering prohibiting both retirement plan providers and the advisors who sell retirement plans to employers from assisting the employers in the selection and monitoring of the [investments] in the retirement plan.” (Due to Financial Industry Regulatory Authority rules, I was required to change a word in the question, but the intention is the same.)
Prohibiting? Really? I am not a lawyer; I am also not giving legal advice in this commentary. Yet the authors of the survey are lawyers. “Davis & Harman LLP commissioned and co-sponsored this report on behalf of a coalition of financial services organizations that provide retirement services to millions of Americans,” according to a statement accompanying the survey.
If the proposal is really so horrific to small-business retirement plans, why is it not sponsored by a broad coalition of business groups, the real end users of retirement fiduciary services? I suppose we’ll never know.
The Employee Retirement Income Security Act, signed into law by President Gerald Ford in 1974, begins with the notion that running a benefit plan of any sort requires diligence and no self-dealing. Further, many acts are prohibited until allowed by a prohibited transaction exemption (PTE). Thus, it is not the DOL newly considering a prohibition; prohibitions have been there for 40 years. For example, ERISA prohibited delivering advice for a fee without declaring that you are acting as a fiduciary and meeting a few other simple tests. The PTE, therefore, allows for advice, as long as the fee, the fiduciary status and a few other items are executed. That’s simple: advice is not prohibited, and the stewardship rule is definitely not new.