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Retirement Planning > Retirement Investing

DOL Fiduciary Plan Needs Rollover Exemption: Retirement Experts

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Lawmakers and retirement experts are urging the Department of Labor to create a new exemption under its proposed plan to amend the definition of fiduciary on retirement accounts so that plan advisors won’t be prohibited from helping participants with rollovers.

In testimony Wednesday during DOL’s third day of hearings on its fiduciary redraft, Marcy Supovitz, a principal of Boulay Donnelly & Supovitz Consulting Group, Inc. in Worcester, Massachusetts, who testified on behalf of the American Retirement Association, said that the proposed rule’s Best Interest Contract Exemption (BICE) will discourage plan advisors from working with participants on rollovers, even in situations where the advisor is receiving level compensation on both sides of the transaction.

Meanwhile, Labor Secretary Thomas Perez told Rep. Ann Wagner, R-Mo., a defiant opponent of DOL’s fiduciary rulemaking, in an Aug. 7 letter that DOL will consider the issues raised during the hearings taking place this week and “move forward towards issuing a final rule that balances the input we have received.”

Supovitz told DOL officials during the Wednesday hearing at its headquarters in Washington that as currently written, “it isn’t clear that the BICE is available for rollover transactions, but assuming it is, it still would not be available for this rollover transaction because the BICE doesn’t extend to discretionary investment management,”

The BICE, she continued, “is specifically designed for differential compensation. When compensation is level and investment-neutral, it doesn’t make sense to impose all of the BICE requirements. That will discourage trusted plan advisors, who have been vetted by the plan sponsor, from serving participants after retirement.”

Supovitz suggested creating a separate, streamlined exemption to BICE known as the “level-to-level compensation exemption.”

Senate Democrats including Ron Wyden of Oregon, Ben Cardin of Maryland and Bob Menendez of New Jersey agreed in their Aug. 7 letter to Labor Secretary Perez that under BICE, plan advisors who receive level compensation from a retirement plan, and would receive level compensation for investment advice provided to an IRA rollover from a retirement plan, “would be discouraged from working with plan participants on rollovers.”

The problem arises, the Senators wrote, “because the level of compensation received from the IRA would be higher than that received from the plan if the advisor concludes that he will need to provide a higher level of service for the IRA.” This situation, they wrote, “would subject the advisor to the same difficult BIC exemption requirements faced by variable fee advisors.”

ARA’s Supovitz said advisors would have to meet some “core conditions” under the level-to-level compensation exemption, including:

  • level compensation on both sides of the transaction;
  • a written agreement between the advisor and the participant prior to effecting (not discussing) the rollover transaction;
  • a disclosure that includes a comparison of the advisor’s compensation at the plan level and the IRA level; and
  • documentation outlining why the rollover transaction is in the best interest of the participant.

Wagner along with other lawmakers asked Perez in a July 28 letter to start a “new formal rulemaking process” on the fiduciary redraft. But Perez told her in his Aug. 7 letter that DOL would move ahead toward a final rule as the high-level of interest and contribution to the DOL’s fiduciary rulemaking process “is indicative of a shift in attitude over the past few years—a recognition of the growing problem of conflicted advice, a desire to create a level playing field, agreement on the simple premise of putting the client’s interest first, and a ‘get-to-yes’ attitude that will lead to a meaningful and workable rule.”

Perez told Wagner to encourage her constituents, both financial services companies and retirement savers, to comment on the four-day hearing transcripts, which will be open for a 14-day comment period after the final hearing on Thursday.

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