The Department of Labor continues to insist that new rules covering fee disclosure between defined contribution plans and participants must feature additional plan sponsor responsibilities for self-directed brokerage accounts, according to notes about a meeting Thursday between DC industry representatives and top DOL officials obtained by Pensions & Investments and comments from a DC industry representative who attended the meeting.
Representatives from several retirement industry trade associations pressed their case to DOL officials that DOL guidance issued May 7 about self-directed brokerage accounts failed to follow the traditional process of proposing a new rule, seeking public comment and then issuing a new rule.
The DOL representatives disagreed. They declined to withdraw the guidance and resubmit it through a formal regulatory process, according to attendees at the meeting.
According to two people at the meeting, the DOL officials in attendance included Phyllis Borzi, assistant secretary of labor for the Employee Benefits Security Administration, and Michael Davis, deputy assistant secretary of labor for the EBSA.
“We think they are breaking new ground,” said one industry representative, requesting anonymity. “This will have major implications. They really raised the issue of plans looking over the shoulder of people investing in brokerage windows.”
The May 7 guidance document enumerated conditions in which investments in self-directed brokerage accounts or brokerage windows could be considered designated investment alternatives under ERISA. If so, such investments would be subject to greater monitoring of the investments and greater fiduciary responsibility for the investments by plan executives.
“As you can imagine, the trade associations were very disappointed with” the DOL's answers to their questions, according to notes of the session compiled by Kent Mason, a partner in law firm Davis & Harman, which represents firms in the retirement industry.
P&I independently obtained a copy of the notes. Calls to Mr. Mason were not returned by press time.
Requests for comment to Jason Surbey, a DOL spokesman, were not returned by press time.
“We indicated (to DOL officials) that to our knowledge, no one in the private sector was aware of the position set forth” in the DOL guidance, according to Mr. Mason's notes. “In addition, there are no systems in place to monitor these issues.”
Although the trade associations “did not make any formal decisions following the meeting,” Mr. Mason wrote that “it is anticipated” that the Office of Management and Budget and Congress may be asked to intervene.
The comments from the DC industry executive and the notes from Mr. Mason also reflected concern about the DOL representatives' views on so-called transition relief contained in the guidance document. According to the document, the DOL will give sponsors some time, without fear of enforcement action, if they make a good-faith effort to comply with the regulations. But this “transition relief” doesn't apply to protecting DC plans from ERISA lawsuits, and the DOL representatives reaffirmed that stance at the Thursday meeting.
Separately, the SPARK Institute issued a letter Thursday to DOL arguing that the guidance document on brokerage accounts was flawed, and that the DOL position “could not have been anticipated by service providers” that haven't had sufficient time to evaluate it.
“Plan administrators are potentially exposed to litigation risk and are unable to follow (the guidance document) without substantial assistance from their service providers, who need more time to make modifications to their compliance approaches,” said the letter from Larry Goldbrum, SPARK Institute's general counsel.
