Some service providers expected to keep going with compliance efforts
As the April 10 deadline approaches for implementation of the Department of Labor's fiduciary rule, some members of the defined contribution industry are forging ahead with compliance strategies while others are holding off. Many others are uncertain.
The cause for uncertainty is President Donald Trump's Feb. 3 order to the DOL to review the regulation and propose “rescinding or revising” it if the department determines the rule “has harmed or is likely to harm” investors or is likely to increase litigation and costs to investors and retirees.
However, making a change — even to extend the April 10 deadline — requires a complex process that includes issuing a new proposal, seeking public comment and publishing a final regulation.
Many in the DC industry fear the process could drag on past the deadline.
“It's too early to tell how this will evolve,” said Lew Minsky, president and CEO of the Defined Contribution Institutional Investment Association, referring to the fiduciary rule, also known as the conflict-of-interest rule.
“I expect a fair number of record keepers will move forward with the plans they put in place,” he said. “Many will see it as an opportunity to promote a higher level of service model.”
ERISA attorney Bradford Campbell said the April 10 deadline was “not enough time” for record keepers to meet all responsibilities. The rule was issued last April, providing 12 months for compliance.
“Everyone is going as fast as they can to achieve compliance,” said Mr. Campbell, Washington-based counsel for Drinker, Biddle & Reath LLP and a former head of the Employee Benefits Security Administration.
“Sponsors are waiting to find out from their service providers,” he said. The changes mandated by the fiduciary rule “are not as significant to sponsors.”
Adding to the uncertainty is the fact that Mr. Trump's instruction to the DOL doesn't specify a timetable for regulatory review or a new deadline. “That makes everyone very uncomfortable,” Mr. Campbell said. “There are real-world consequences if this deadline isn't extended.”
Mr. Campbell said he believed record keepers that have announced expansion of their fiduciary advice policies will retain them amid the uncertainty.
Not changing course
“We're not changing anything,” said Joe Ready, the Charlotte, N.C.-based executive vice president and director of Wells Fargo Institutional Retirement and Trust, reaffirming his company's plans that he discussed in a Jan. 9 Pensions & Investments story.
Wells Fargo will assume a fiduciary role in discussing with DC plan participants the role of Social Security and what age to take it; how much to defer annually in their accounts; how to hedge longevity risk; and how to determine the desired monthly income in retirement.
“We needed a lot of work to be done from a strategic standpoint and technical standpoint,” Mr. Ready said in a recent interview. “If a delay comes along, we'll assess it then. We're going to stay the course.”
Empower Retirement also is proceeding with its timetable to communicate to sponsors, advisers, consultants and brokers its policies and practices for education and advice, said Edmund Murphy III, president of the Greenwood Village, Colo., record keeper.
Even though Empower advocates some revisions in the fiduciary rule, “it doesn't change our position,” said Mr. Murphy.
Stephen Austin, a spokesman for Fidelity Investments, Boston, in an email said: “While we are still finalizing our response to the new regulations, we fully expect that we will continue to offer varied ways to work with us and our fiduciary offering to investors.”
In the Jan. 9 article, P&I reported on an independently obtained document sent by Fidelity to corporate DC plan clients describing a choice between an advice/education service model and an education-only model.
Sponsors must be attentive to changes in record-keeper policies regardless of what happens to the fiduciary rule, said Stephen McCaffrey, president of the Plan Sponsor Council of America, Chicago.
PSCA is telling members to “be careful” about what is considered advice vs. education, Mr. McCaffrey said. There's “confusion” among members since the president's order to the DOL, he said.
Despite uncertainty, sponsors have become more aware of services being provided through their record keepers, said Mike Volo, a senior partner, based in Wellesley, Mass., for Cammack Retirement Group, a DC consulting firm. They are conducting more due diligence about advice models and paying closer attention to agreements with service providers, he said. Still, the president's decision “puts everything in limbo.”
One plan sponsor that is comfortable in taking action is Sonepar USA, whose five DC plans have $650 million in total assets. “We have worked with our record keeper (Charles Schwab) and our consultant ( CAPTRUST Financial Advisors) in keeping tabs on what's going on,” said Annette Grabow, the Charleston, S.C.-based retirement programs manager. “They say they will be ready by April 10. We're not worried.”
In April 2015, Sonepar added two advice services offered by Morningstar Inc. One, a free service, enables Morningstar to take participant data from the record keeper plus additional data from the participant as a basis for offering advice that can be accepted or rejected.
The other service, which costs extra, takes the same data and places the participant in a managed account. The participant can opt out. “We are not preparing to change anything,” said Ms. Grabow when asked about Mr. Trump's instructions to the DOL.
The prolonged process of debating and enacting the fiduciary rule has “raised plan sponsors' awareness of conflict of interest,” said William McClain, a Mercer DC consultant based in Seattle. “Even though the fiduciary rule is aimed at service providers, plan committees must make sure providers are complying,” he said.
Sponsors must pay more attention to a record keeper's call-center scripts, the record keeper's website and the various communications from the record keeper to participants to make sure information isn't tilted toward proprietary products, Mr. McClain added.
Although Mr. Trump's instructions have placed sponsors “basically in a holding pattern” on specific rules, sponsors “aren't crossing this off their list,” Mr. McClain said. “We tell them conflict of interest didn't go away.”
Response to the fiduciary rule also seems to depend on the sponsor's size, said David Levine, a partner at Groom Law Group, Washington. “Large plans are reviewing (service provider) materials and asking a lot of questions,” he said. “They may re-evaluate what they're doing. Large plans have bargaining power. Small plans don't have much choice.”
This article originally appeared in the February 20, 2017 print issue as, "Trump throws future of fiduciary rule into disarray".