Updated with correction
Phyllis C. Borzi will take a tougher line on defined contribution plan fee disclosure and advice issues, taking on the powerful mutual fund industry, if she is confirmed as assistant secretary of Labor for the Employee Benefits Security Administration.
Ms. Borzi — who was nominated March 26 by President Barack Obama to replace Bradford Campbell — also might require 401(k) plans to offer annuities to plan participants to help ensure they have an adequate income at retirement.
Ms. Borzi also is expected to support proposals to increase retirement savings, such as requiring defined contribution plan sponsors to automatically enroll employees and requiring smaller companies with no retirement plans to provide direct-deposit individual retirement accounts to workers.
Ms. Borzi did not respond to an e-mail request to comment.
In the defined benefit area, Ms. Borzi seems likely to favor relaxation of funding rules, although the Treasury Department retains primary jurisdiction on that issue.
The Senate Health, Education, Pensions & Labor Committee has not set a date for Ms. Borzi's confirmation hearing, according to an e-mail from Kaelan Richards, spokesman for Sen. Edward Kennedy D-Mass., who chairs the committee.
An employee benefits and Capitol Hill veteran, Ms. Borzi was, for 16 years, pension and employee benefit counsel to the House Subcommittee on Labor-Management Relations. Now, she is a research professor at George Washington University Medical Center, conducting research and policy analysis on such areas as employee benefit plans and managed care. She also is of counsel to O'Donoghue & O'Donoghue LLP.
Teresa Ghilarducci, a Schwartz professor of economic policy at The New School for Social Research, New York, recalled a recent meeting of the $1 billion voluntary employees' beneficiary association for the Goodyear Tire & Rubber Co., where Ms. Borzi expressed her dismay to executives at one of the plan's vendors. (Ms. Borzi was appointed by a U.S. District Court judge to be a public member of the administrative committee for the Goodyear VEBA.)
“She (Ms. Borzi) was very firm and explicit,” said Ms. Ghilarducci. “She was of the mind there is no excuse for a vendor not to tell workers what prices they had to pay for services.”
According to Ms. Ghilarducci, neither Ms. Borzi nor the Obama administration will tolerate the lack of fee disclosure in defined contribution plans. Ms. Ghilarducci said Ms. Borzi thinks such non-disclosure violates a basic tenet of goodwill in the contract between vendors, retirement plans and their participants.
Mark Ugoretz, president of the ERISA Industry Committee, Washington, said Ms. Borzi “feels government ought to have greater authority in the retirement space. We need to be wary of how much more aggressive she will be on compliance and penalties, as well as fiduciary liability. We are looking for a rational enforcement of rules,” which Mr. Ugoretz thinks he will get from Ms. Borzi.
The Department of Labor postponed until May 22 the implementation of a regulation allowing workers to receive investment advice from the same firm that provides investment options to the plan.
William Sweetnam, principal at the Groom Law Group, Washington, formerly tax benefits counsel at the Treasury Department under President George W. Bush, said Ms. Borzi “could look to advocate for tougher rules regarding mutual funds giving direct advice to retirement plan participants than what is out there.”
“Originally, the advice rule was pushing toward loosening restrictions on mutual fund companies, so she has to see under her authority how much more she can tighten the rule,” Mr. Sweetnam said.
Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees, Washington, said tightening of the advice regulation would help clarify the responsibility of vendors to better represent their clients and thus eliminate potential conflicts of interest.
Ms. Borzi also is expected to require defined contribution plans to offer some type of annuity investment option. “I expect her to show interest in annuity-type proposals to get people and companies to take this route,” said Ann Combs, former EBSA chief and now a principal at Vanguard Group Inc., Valley Forge, Pa..
“Also, we could see proposals requiring 401(k) plans to offer qualified joint survivor annuities with a form of lifetime payout provision like in DB plans.”
But David Wray, president of the Profit Sharing/401(k) Council of America, Chicago, said his organization “does not support mandatory annuities.”
“We are in favor of current innovation in the private annuity marketplace. Government mandates would intervene in that innovation. Let the private sector address the annuity option. Retirement money and choices belong to the participants,” Mr. Wray said.
In the defined benefit area, Ms. Borzi also would likely favor easing short-term funding rules to help corporate plan sponsors cope in the current market environment. “She'll be concerned about avoiding any type of disincentives to the maintenance and strength of DB plans,” said Ms. Combs. “While the IRS has final say on the rules regarding DB plan funding, you can expect her to weigh in.”
