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Lifting the fog: Face to Face with Phyllis C. Borzi

The Department of Labor's arcane pension regulations and policies could become a bit clearer soon. That's because Phyllis C. Borzi, who was confirmed July 10 as assistant secretary of the Labor Department's Employee Benefits Security Administration, started her professional life as a high school English teacher. Encouraging clarity has been a longtime priority for her.

Ms. Borzi, who is also a lawyer, is no stranger in Washington's pension and retirement community. She led the EBSA review for President Barack Obama's transition team and was the pension and employee benefit counsel for the House Education and Labor Committee's Labor-Management Relations Subcommittee from 1979 to 1995.

She also served on Hillary Rodham Clinton's Presidential Task Force on Health Care Reform in 1993, when Ms. Clinton's husband was president. Most recently, Ms. Borzi was a research professor in George Washington University Medical Center's School of Public Health and Health Services.

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Phyllis C. Borzi

  • Current position: Assistant Secretary of Labor of the Employee Benefits Security Administration
  • Agency purview: Oversees and regulates 700,000 corporate retirement plans, along with 2.5 million health plans and other welfare benefit plans providing benefits to 150 million Americans
  • Employees: 835
  • Education: BA, Ladycliff College; MA, Syracuse University; JD, Catholic University Law School
  • Personal interests: Theater, cooking and museums

Two key proposed Bush administration rules would enhance the fee disclosures that DC plan service providers must make to plan sponsors and that DC plan sponsors would have to make to plan participants. What changes are you considering to these proposals? One of the major criticisms of the 408(b)(2) regulation (requiring plan service providers to disclose fee and compensation information to plan sponsors) was that it was very difficult to have apples-to-apples comparisons of the various types of investment products. ... What I would expect is that the (final) regulations would be a lot more robust in giving people directions as to the exact kinds of disclosures that would be needed (so) fiduciaries (could make better comparisons) among products.

On the participant-disclosure reg, the biggest criticisms there were that the kind of disclosures that participants would be required to receive were too complicated. ... What we would be looking at in final regulations is a way to try to simplify the disclosure ... You might want to describe it as a Goldilocks rule: not too much, not too little, but just right. And it's very difficult to strike that balance, but that's what we're going to try to do.

Do you have a timeline? We'd like to have both of them done in the next few months. The 408(b)(2) regulation is probably on a faster track than the participant-disclosure one, because it's much more difficult to come up with simple ways to disclose.

A Bush administration regulation that would clear the way for mutual funds to offer direct one-on-one investment advice to plan participants has been put on hold by the Obama administration. What are your plans for that regulation? Clearly, that was the most controversial of these three 401(k)-related regulations. We're taking very seriously the comments that people made about the regulations going well beyond the scope of the statute. So we're taking a fresh look at it. That regulation was issued in final form and then put on hold; the effective date has been suspended until November. Our goal would be to try to get something out before November and not have to change the effective date.

Does the Pension Protection Act require the DOL to permit some level of conflicted advice? The statute is not a model of legislative drafting, because (the advice issue) was the very last issue that was decided. It was put together; there were compromises of compromises. I think it's fair to say that there is some level of advice that can be given by people who already have a prior relationship with a plan. ... What's difficult is trying to figure out how to (make) sure that the advice is as free from conflict as possible.

Is the DOL concerned that target-date funds built on a mutual fund company's proprietary funds present a conflict of interest? There are a number of potential conflicts of interest. ... The question is what to do about it. There are theoretical conflicts and there are real conflicts. Part of what we're going to be exploring, both internally and with the (Securities and Exchange Commission), is whether or not there is a sufficient level of concern about potential conflicts that requires us to take some action to deal with it. By us, I mean both agencies, together (or) separately.

What actions should the Labor Department take to encourage retirement savings? Is there anything the DOL can do to bolster the defined benefit system? Both of those issues are issues that are of great concern to the Secretary (of Labor, Hilda Solis). Both she and I are very concerned that given what's happened in the economy, there's a crisis of confidence. People are concerned that neither their traditional pension funds nor their 401(k) funds are going to be adequate or there when they're ready to retire. This is a longer-range problem. There are no quick fixes.

But what I certainly intend to do is to try to reach out to the various stakeholders — the business community, the labor unions, the consumer groups, the retiree groups, and other people who are interested in this area — and try to see if there's a way that we can think outside the box and maybe come up with some ways to provide greater retirement security.

Of course, everybody has been talking about looking at defined contribution plans and providing greater security through ways to encourage annuitization and avoiding a lot of leakage out of the system. Certainly, this is something we're going to look to over the longer term.

The Pension Benefit Guaranty Corp.'s inspector general recently alleged that the agency's former director (Charles E.F. Millard) may have had inappropriate contacts with bidders during the manager-selection process. Will future PBGC directors be barred from getting involved in the hiring of money managers for the agency? Based on my reading of the (inspector general's) report, there were already policies in place that precluded a lot of what the former director was accused of doing, but I guess he didn't pay a lot of attention to those policies. The (PBGC) board has specifically asked the PBGC to review the existing policies and make recommendations to the board for a series of any changes or new policies that might be necessary to insulate the agency from having the same kind of problem that allegedly occurred with the former director.

What steps is the Obama administration contemplating to ensure the PBGC's financial solvency? At this point, the White House, in a process that has been convened by the National Economic Council, is beginning to look at these issues. The board rep agencies (DOL, Department of Treasury and Department of Commerce) are involved. Various other parts of the administration — OMB, the Council of Economic Advisers — (are also involved). So there's a broad-based group of people beginning to look at this.

The administration is very concerned about the PBGC's long-term financial deficit, although on a short-term basis it's not in trouble. There are plenty of assets to pay benefits in the short term. But over the longer term, there are concerns, and we're looking at various options. It's certainly true that nobody's focused on any particular options.

What policy initiatives do you want to launch while you're heading EBSA? No. 1 is we're committed to better and smarter enforcement of the law. One of the things the Bush administration did, which we think is a good thing, is they were very focused on enhancing compliance assistance. ... But that has to be coupled with (a) strong, vigorous, comprehensive enforcement policy.

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