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Regulation and Compliance > Federal Regulation > DOL

DOL Fiduciary Redux Is a 'Sleeping Giant': Groom's Saxon

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Editor’s note: This article first appeared in Human Capital, a newsletter by Washington Bureau Chief Melanie Waddell about the people who shape the financial regulatory space.

Welcome back to Human Capital! We’re starting off the week with a warning from ERISA attorney Steve Saxon: The Labor Department’s moves in the fiduciary realm “aren’t dead at all,” and forthcoming Labor guidance on fiduciary-related matters is “a sleeping giant” that will be awakened by the SEC’s Regulation Best Interest for brokers.

While Saxon, who specializes in Title 1 of the Employee Retirement Income Security Act at Groom Law Group, is anxiously awaiting Labor’s fiduciary guidance, other regulatory bugaboos like cybersecurity and confidentiality of plan data along with rising DOL investigations occupy his time.

What’s on the horizon? When the SEC rolls out Reg BI (Saxon and others are pinning their hopes on delivery in the next six months), “Labor will come to life again, and we will have to deal with the possibility that people would have to be fiduciaries when they sell products and want to receive variable compensation.”

As it stands now, the retirement planning world is still relying on Labor’s temporary enforcement policy under Field Assistance Bulletin (FAB) 2018-2, “where the DOL said temporarily it would not enforce ERISA prohibited transaction rules” for those acting as a fiduciary.

Saxon’s hope is that Reg BI will be “a launching pad — that the SEC and DOL would work together to enable us to build a framework to comply with Reg BI. Right now, we’re relying on the temporary FAB — it has to change.”

The next piece of guidance the industry is looking for in the rollover advice space is Reg BI, Saxon said.

The ideal SEC Reg BI standard would be “a little more flexible than the standard used by DOL” in the now vacated — and controversial — best-interest contract, or BIC, exemption. “Instead of saying that a rep making a sale or rollover recommendation can’t take his or her personal financial interest into account, [the SEC standard] would say that the rep can’t subordinate his or her client’s interest to his or her personal interests.”

As to DOL investigations, “enforcement activity is as serious and intense as it’s ever been,” Saxon said, with Labor zeroing in on a wide variety of issues — on-time employer contributions, abandoned plans, compliance with prohibited transaction exemptions, as well as new products.

New products and services are entering the marketplace, and “Labor is looking at that to make sure” compliance is up to snuff, Saxon said.

DOL is specifically eying target date funds that have been created as qualified default investment alternatives (QDIAs), as a “high percentage of money and new contributions” are going into them.

Keeping unsavory individuals’ hands off of plan data, which includes personal info about participants — like their address, Social Security number and account assets — is another nettlesome issue, as “problems arise when that info is not maintained properly, such as a service provider selling it without permission.”


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