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ARA Comments on NJ Proposed Fiduciary Conduct Standard

The American Retirement Association filed a comment letter Oct. 19 with the New Jersey Bureau of Securities concerning the fiduciary conduct standards the state government is considering. Gov. Phil Murphy (D) to announced plans in September to issue a rule strengthening the standard for investment professionals in the Garden State.

The New Jersey Bureau of Securities is working on the standards, which would impose a fiduciary duty on all investment professionals in New Jersey and establish a requirement that they put their clients’ interests above their own when they recommend investments to their clients.

In the letter to New Jersey Bureau of Securities Bureau Chief Christopher Gerold, the ARA said that it believes that investors “are best served when the interests of the financial services professional and investors are aligned.” In particular, it said, “ARA supports putting the interests of investors (and particularly retirement investors) front and center under a ‘best interest’ standard,” and also “supports efforts to tailor rules to preserve investor choice with regard to business models and compensation practices in a manner that is workable for broker-dealers and investment advisers alike.”

However, the letter notes that while the ARA “strongly supports a fiduciary standard,” it contends that the application of such a standard under state law “is very problematic for ERISA plans and their professional service providers.” This, the ARA argues, “is due to the very real potential for conflicting standards between state law and those set forth in ERISA. For example, although not determined at this time, regulations could potentially impose new and different disclosure requirements than are presently applicable under ERISA.”

The ARA says that it believes that ERISA “already provides a uniform body of benefits law and regulation that protect participants and beneficiaries from impermissible conflicts of interest.” Furthermore, it argues, “It was the intent of Congress in enacting ERISA to provide a uniform set of national rules and causes of action that should be respected by New Jersey in promulgating a fiduciary standard of care for investment professionals.”

“ERISA §514(a) provides that the sections of ERISA relevant here supersede any state law that is in conflict,” the letter continues. It further observes that jurisprudence, including U.S. Supreme Court rulings, backs the primacy of ERISA. It argues that “ERISA’s civil enforcement provisions are intended by Congress to be exclusive” and that, in the high court’s words, “…any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with this clear congressional intent [and is pre-empted.]” And the Supreme Court has said that “Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly,” it notes. Furthermore, says the ARA, ERISA’s preemption of state law as held by the Supreme Court “applies equally to ERISA’s provisions that regulate fiduciary conduct,” as the Court articulated in multiple rulings.

The ARA recommends that the Bureau, “in exercising its regulatory authority, affirmatively exclude fiduciary services provided to ERISA plans (and fiduciary services provided to the participants and beneficiaries in such plans) from application of the proposed fiduciary standard in recognition of ERISA pre-emption under ERISA §514 and the existing enforcement mechanisms already provided by ERISA §502(a).”

The letter also notes that the ARA “looks forward to working with the New Jersey Bureau of Securities on this important issue.”

ARA General Counsel Craig Hoffman will testify at a Nov. 2 workshop concerning the proposal and the ARA’s stance.