Finalization of the Department of Labor’s (DOL) proposed fiduciary rule will place new responsibilities on sponsors of 401(k) plans to determine the extent of service they want from retirement plan providers, says Douglas Fisher, senior vice president of policy development at Fidelity.
Fisher, who spoke with our sister site, BenefitsPro, in between meetings on Capitol Hill last week, said no one can predict with certainty how the rule will affect the recordkeeping market, or how participants and sponsors will pay to have their plans administered going forward.
“Fees for recordkeeping and money management have been going down — that’s happening regardless of the DOL rule,” says Fisher.
As of last year, Fidelity had $2.8 trillion in retirement assets under administration, according to its website.
A one-time aid to the Senate Finance Committee, Fisher said he does not expect Fidelity to be impacted by potential restrictions on propriety investment products in DOL’s final rule, because its recordkeeping services are built on open architecture investment platforms.
Nor does he think the rule will require recordkeepers to charge sponsors on a flat fee-per-participant basis, despite what he says may be the DOL’s intended bias.
“ERISA (Employee Retirement Income Security Act) provides a fair amount of flexibility for all of the options” on how participants and sponsors pay for recordkeeping, he says.
No matter the specifics of the finalized rule, Fisher said Fidelity’s singular goal will be to continue to supply a “rich suite of services” and the “robust education” sponsors want to deliver to participants.
Over the past year, Fidelity’s cadre of ERISA experts has centered its attention on articulating to regulators the critical value recordkeepers bring to enhancing participant engagement. “Without those services, you can not have a well-functioning, compliant plan,” says Fisher.
Fisher could be said to be guardedly optimistic that regulators have fully weighted industry’s input, but he is not without lingering concerns.
“I don’t know that the regulators have a full appreciation for what goes into keeping a plan in compliance,” says Fisher. “Industry spends tens of millions helping participants become more financially educated.”
Like other stakeholders, he fears that the DOL has been “blindly driven” by the question of fees, which Fisher said could result in discounting the important value that recordkeepers and advisors provide sponsors and participants.
“The retirement plan is the sole source of financial education most workers get,” he says, underscoring the role recordkeepers play as educators to a large swath of the nation’s retirement savers.
Beyond the degree to which the rule will limit record keepers’ education initiatives — Fisher and others point to the question of whether model portfolio information will fall under the rule’s interpretation of fiduciary advice — Fidelity is focused on several other areas of the finalized rule’s language.
The proposed Best Interest Contract Exemption, which requires comprehensive fee disclosures, could be required of service providers when participants request help in investing.
Requiring a so-called “wet signature” — a participant signature before advice is administered — is an unworkable aspect of the provision’s proposal, says Fisher, as it would create an inefficient paper chase potentially involving tens of millions of participants.
Fidelity has lobbied to let the sponsors approve the contract for participants, says Fisher.
“We are perfectly fine operating under a best interest standard of care, but it is a question of the mechanics of the contract,” explains Fisher.
Concerns over when the rule will go into effect for providers also loom — the proposal places an eight-month deadline for implementation — as the rule could potentially impose significant changes to recordkeepers’ communication tools.
Then there is the matter of the small plan market, a significant area of focus for Fidelity. The majority of the more than 20,000 401(k) plans administered by Fidelity fall into what the company calls the small and midsize market. Fidelity services 3.3 million participants in plans with less than $50 million in assets.
Critics of the DOL’s rule have said the proposal’s sellers’ carve-out, which would require all advisors to plans with fewer than 100 participants or less than $100 million in assets to be fiduciaries, will put unequal compliance and liability costs on both advisors and sponsors in the small plan market.
Some opponents of the DOL’s proposal argue advisors to large plans will be subject to less disclosure costs and oversight.
That discrepancy threatens to drive small employers and advisors out of the market, claim DOL critics. The Chamber of Commerce has recently said it may pursue litigation over that very aspect of the proposal, presuming is survives finalization.
Fisher said he has no unique insight on the exact date of the rule’s release, but added that the “rumor mill” is calling for it to drop on Monday, April 4.