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American Retirement Association Files Comments on Fiduciary Proposal

The American Retirement Association (ARA) has submitted its comment letter to the Department of Labor (DOL) on the fiduciary rule re-proposal. 

ARA has long supported aligning the interests of retirement plan advisers to individual retirement investors through a best interest standard. The comment letter sets out a number of modest, but critical improvements to the re-proposed rule to improve the implementation of such a best interest standard. The suggested modifications would assure not only that advisers and providers could continue to assist plan participants with key concerns, including rollovers or investment education, but also help expand retirement plan coverage by working with small business owners to establish and operate ERISA retirement programs.

Level Comp to Level Comp

To address barriers that the re-proposal could raise in helping participants with rollovers, the ARA proposed a separate exemption for advisers that provide “levelized compensation advice.” Under the fiduciary rule as proposed, unless compensation does not increase at all when a rollover from an employer-sponsored plan to an IRA occurs (which is uncommon due to the customized services typically provided within the IRA), advisers will only be able to help participants on the rollover if they first comply with a complex and cost-prohibitive “Best Interest Contract Exemption” (BICE). Subjecting a level compensation adviser to the BICE requirements effectively penalizes the adviser for engaging in the rollover transaction — and would put retirement plan advisers at a competitive disadvantage vis-à-vis advisers who had no previous relationship with the participant in the plan. 

Instead, the ARA believes that the better solution is to create a new “level compensation to level compensation” exemption that provides the participant with the information needed to make an informed decision, and requires the adviser to document the reason the rollover makes sense for the participant, without burdening the plan adviser with all of the current BICE requirements designed to curtail conflicted advice. 

Investment Education Standard Preserved

The ARA also argued in its letter that the current investment education parameters be maintained. Under current law, an advisor (or education provider) can name the specific funds available in the plan in education materials (such as a sample asset allocation chart) without becoming a fiduciary. For example, specifically naming a fund as an example of a fund which is “large cap growth” translates practical information to the participants so decisions can be made. Under the rule as proposed, mentioning specific fund names in any general communication to plan participants would be considered fiduciary advice at the participant level — even though the adviser has no knowledge of any participants’ financial situation.  

The ARA also asked DOL to clarify that the education carve out would be available to common defined benefit plan situations.

Small Plan Flexibility

Further, the ARA letter explains that advisers must be permitted to have flexibility to work with small businesses on retirement plans to promote access to these plans. Without a special rule, there will be fewer new small plans created, and fewer of those workers employed by small businesses will have access to a plan at work.  

To encourage advisers to work with small plans, the ARA’s comment letter recommends that the final rule clarify that service providers with level compensation do not need an exemption, even if the level compensation is received from a third party. When an exemption is required, the final rule should acknowledge that ERISA-covered plans are already subject to fee disclosure rules and a robust enforcement protocol, so the BICE contractual obligations and disclosure requirements are simply not necessary.

The ARA letter also asked DOL to: 

• clarify that the platform provider carve-out applies to the marketing of the platform by parties unrelated to the platform 

• provide a clear carve out for professional services provided by accountants, actuaries and attorneys

• provide a two-year transition period to allow adequate time for compliance to the new requirements of the rule   

The next step in the regulatory process are public hearings on the rule, which are scheduled for the week of Aug. 10, 2015.