The Labor Department is expected to be the primary focus for much of the major pension-related action in 2010.
Among key projects on the DOL's front burner are a controversial proposal to subject consultants offering investment-related advice to a higher fiduciary standard, and the launch of proceedings aimed at encouraging the offering of DC plan annuity payouts.
In addition, the Department of Labor will propose new regulations governing the offering of investment advice to participants in DC plans (and enhance) defined contribution plan fee and manager compensation disclosures.
A key DOL target in the proposal is the third-party payments that some consultants receive when retirement funds hire money managers recommended by the consultants (Pensions & Investments, Dec. 28).
“That regulation has the potential to be quite controversial,” said Bradford P. Campbell, a former assistant secretary of labor for the Employee Benefits Security Administration and now an attorney with Schiff Hardin LLP in Washington.
The proposal came as a surprise to agency observers when the DOL unveiled its agenda for the new year on Dec. 7.
Under another new initiative that the DOL announced in its 2010 agenda, agency executives are seeking public comment on “what steps, if any,” should be taken to encourage the use of annuity payouts in defined contribution plans.
“With a continuing trend away from defined benefit plans to defined contribution plans, employees are not only increasingly responsible for the adequacy of their retirement savings, but also for ensuring that their savings last throughout their retirement,” the agenda states. “Employees may benefit from access to and use of lifetime income or other arrangements that will reduce the risk of running out of funds during the retirement years,” the report said. “However, both access to and use of such arrangements in defined contribution plans is limited.”
Kevin Wiggins, an ERISA attorney with the law firm Thorp Reed & Armstrong LLP, Pittsburgh, and a member of the DOL's ERISA Advisory Council, speculated the department will consider ways to make it easier for DC plan sponsors to offer annuities. “The problem the Department of Labor faces is it cannot mandate annuities in DC plans,” he said. “The law requires annuities for DB plan payouts, not for DC plans.”
In other action, the DOL is expected to propose new, more conservative regulations governing the offering of investment advice to DC plan participants. The Labor Department killed a controversial Bush administration regulation that would have permitted advice offered through a computer model independently certified to be unbiased or if the compensation of the firm providing one-on-one consultation didn't vary depending on the investments selected based on that advice (P&I, Nov. 30).
On still another front, the DOL is expected to come up with new rules spelling out what sort of fee and compensation information that plan service providers must provide plans sponsors and what sort of fee disclosures sponsors must make to participants.
ERISA attorneys also expect the Labor Department to announce new guidance this year aimed at giving DC plan sponsors additional information about what factors they should consider when offering target-date funds as investment alternatives to their plan participants.