(updated with correction)
The unexplained delay by the Department of Labor in issuing regulations governing fee disclosure by providers to plan sponsors is frustrating the defined contribution industry.
Several organizations representing DC industry members have asked the DOL to push back the scheduled April 1 compliance date, arguing providers won't have enough time to implement new rules affecting Section 408(b)(2) of the Employee Retirement Income Security Act.
Experts had been expecting the DOL to issue final regulations in late October or early November, but the department hasn't published the final rules in the Federal Register.
“We don't know what is holding this up, and if it (the delay) is because of a substantive change,” said Robyn Credico, the Arlington, Va.-based senior consultant and defined contribution practice leader for North America at Towers Watson & Co.
“We are concerned about having sufficient time,” said Craig Hoffman, general counsel and director of regulatory affairs for the American Society of Pension Professionals and Actuaries and the Council of Independent 401(k) Recordkeepers. “But it's hard to determine how much time you need until you see what you have to do.”
The ASPPA and the CIKR sent a letter on Dec. 19 asking the DOL to delay the implementation date until 12 months after issuance of final regulations.
These fee-disclosure rules have been plagued by a series of delays. The DOL initially proposed regulations in late 2007 and held public hearings in early 2008. Industry members complained about many of the recommendations. In July 2010, the DOL issued what it called “interim final” regulations, and asked for additional public comment.
The DOL originally said July 16, 2011, would be the implementation date for what industry members now call the “final-final” regulations. The DOL since has pushed back this date to Jan. 1, 2012, and then to April 1.
After analyzing public comments, the DOL submitted its rule recommendations to the Office of Management and Budget on July 22, standard procedure in the regulatory process. The OMB normally has 90 days to review proposed regulations; it should have completed its work by Oct. 22.
Several industry sources said the OMB apparently approved the regulations but also won't allow the DOL to publish them in the Federal Register yet.
Josh Lamont, a DOL spokesman, and Meg Reilly, an OMB spokeswoman, did not respond to requests for comment.
“I can't tell what the reason for the delay is,” said Larry Goldbrum, the Washington-based general counsel for the SPARK Institute, Simsbury, Conn. If the “final-final” regulations contain wording similar to that of the interim final rules, Mr. Goldbrum said sponsors belonging to SPARK wouldn't need an extension in implementing the rules.
“If changes are complicated and significant, it could require 18 to 24 months,” he said. “It is hard to gauge without seeing the final rule.”
The delay also affects the implementation of already completed regulations governing fee disclosure between sponsors and participants.
New rules affecting Section 404 of ERISA, approved by the DOL in October, are scheduled to take effect May 31. The DOL has said it would keep a 60-day separation between implementation of both sets of regulations.
“At this point, no matter how small the changes might be, it is unrealistic to expect” that providers can comply with new regulations by April 1, said C. Frederick Reish, a Los Angeles-based partner with Drinker Biddle & Reath LLP, adding that the delay hurts sponsors and participants.
DC industry members continue to fret about the uncertainty, especially if the “final-final” regulations require a summary fee-disclosure statement by providers. If that happens, “at this late date, the industry will not be able to meet the April 2012 compliance date,” said a Dec. 17 letter to DOL written by Mary Podesta, senior counsel for pension regulation, at the Investment Company Institute, Washington.
“If there is a specific summary requirement, it could take a long time” for providers to implement the regulation, said Jennifer Eller, a principal and ERISA specialist at Groom Law Group, Washington. “I could imagine a six- to 12-months extension” of the compliance date.
Another issue cited by the ASPPA and the CIKR in their letter is the extra legal costs that industry members could incur.
“Engagement contracts used by service providers to ERISA plans will be greatly affected by the new rules,” said the letter, citing the cost of hiring lawyers. “For obvious reasons, our members are reluctant to incur this expense at this point in the process out of a well-placed fear that they will need additional legal help when the regulation is finalized.”