But Roberta Ufford, a partner in the Groom Law Group, Washington, suggested the Labor Department could deduce that the failure by service providers to disclose information about fees could be treated as "exercising control over plan assets," and that control would automatically render them fiduciaries.
"And if you become a fiduciary, then you're automatically walking into a self-dealing violation" by not disclosing fees and compensation arrangements, she said. Plan sponsors must disclose fee details on the Form 5500 they file annually with regulators.
Ann L. Combs, assistant labor secretary in charge of the Employee Benefits Security Administration, said the rules are a "top priority" in light of the findings by the SEC, and are likely to be proposed ahead of the scheduled April 2006 deadline.
The Labor Department also is considering a proposal requiring insurance companies, banks and other non-mutual fund companies that provide investment options in a defined contribution plan to give fee information to employers in a standardized format akin to mutual fund prospectuses, said Robert Doyle, director of regulations and interpretations at the EBSA. The Labor Department also plans to adopt the recommendations made last year by a working group of the ERISA Advisory Council that all defined contribution plan participants should receive a "profile" or basic prospectus for each investment option.
"We are working to both clarify the fee disclosures that must be made to participants in individually directed accounts … and what information about fees that fiduciaries must obtain, and service providers must furnish, in order to comply with the ‘reasonable compensation' and ‘reasonable arrangement' requirements" under ERISA, Ms. Combs said in a recent speech at a conference of the Society of Professional Administrators and Recordkeepers in Washington.
But many investment experts and investment consultants suggest the Labor Department's efforts do not go far enough.
They believe investment consultants meet the definition of fiduciary under federal pension law, and Labor Department guidance clarifying that would put an end to most self-serving compensation arrangements.
ERISA defines fiduciaries as those that exercise discretionary control over plan assets, render investment advice for direct or indirect compensation, or have discretionary responsibility in administering a plan.
Samuel L. Halpern, executive vice president and general counsel of Independent Fiduciary Services, Washington, recalled testifying before a working group of the ERISA Advisory Council in the mid-1990s that investment consultants should be regarded as fiduciaries. "And to the extent they are, they should be subject to the self-dealing provisions of (ERISA) where they should not be paid by someone with an interest that is adverse to the plan," he still maintains.
Mr. Halpern said IFS accepts fiduciary obligations under the pension law.
Other investment consulting firms that consider themselves fiduciaries under ERISA include Cliffwater LLC, Marco Consulting Group, Summit Strategies Group, Segal Advisors Inc., Ennis, Knupp & Associates, Dahab Associates Inc., Cambridge Associates, Meketa Investment Group Inc. and Standard Valuations Inc.
But accepting fiduciary responsibility can be tricky if a plan's trustees don't always have the best interests of the participants in mind, said Stephen L. Nesbitt, chief executive officer of Cliffwater. "You have to prepared to say no. If you're not prepared to say no, you shouldn't be a fiduciary. You can't be a rubber stamp."
Officials at some consulting firms — such as Mercer Investment Consulting Inc., Watson Wyatt Investment Consulting and Evaluation Associates LLC — say being considered a fiduciary depends on the nature of the assignments.
"There are some clients for whom we are named plan fiduciaries, but that is something that we negotiate," said Jeffrey Van Orden, chief executive of the Norwalk, Conn.-based Evaluation Associates.
Jack M. Marco, chairman of Chicago-based Marco Consulting Group, said all investment consultants should accept fiduciary responsibility under ERISA at all times. He also believes they should be registered with the SEC as investment advisers. Plus, he said, consultants should be required to disclose all revenues of the firm and its affiliates to current and potential clients, as well as on the Form ADV that registered investment advisers are required to file with the SEC.
Said Stephen P. Holmes, president of St. Louis-based Summit Strategies Group: "We believe that skirting the issue of ‘fiduciaries' is one of the shell games the consulting industry is now getting revealed for playing, where people are claiming they are not fiduciaries and therefore do not have to act in the client's best interest. In other words, so we can take all the money we can possibly get from the money management community. I know several larger firms have said we don't give recommendations, we only outline options and therefore we are not a fiduciary. But our reading of the role and definition of fiduciary suggests that these folks are probably kidding themselves. In a court of law, that argument would fall apart pretty quickly."
Some people such as Steven Saxon, partner in the Groom Law Group, believe it is retribution by the Bush administration because labor unions did not support his 2004 re-election bid. "Almost every major Taft-Hartley plan is under investigation," he said at the SPARK Institute conference recently.
