Defined contribution industry leaders are worried about greater risks of participant lawsuits and Labor Department enforcement now that the DOL has released guidance on plan sponsors' responsibilities for self-directed brokerage accounts.
Meanwhile, industry trade group officials claim that what the department calls guidance is a new regulation in disguise. Plus, they aren't satisfied with the promise from Labor Department officials to give them “transition relief” by temporarily forgoing enforcement if good faith efforts to comply are made.
The DOL's comments about self-directed brokerage accounts, brokerage windows and similar options were included in the Labor Department's May 7 guidance document on participant fee disclosure regulations, which take effect Aug. 30.
Trade group representatives say the DOL action — unless withdrawn or modified — will increase fee disclosure compliance costs, fiduciary responsibilities and monitoring of brokerage accounts.
“Plan sponsors never thought they had an obligation to monitor funds in a brokerage account,” said Larry Goldbrum, general counsel of the SPARK Institute, Simsbury, Conn., which represents record-keeping, benefits consulting, third-party administration and other retirement industry firms.
“Our concern is that this regulatory process has been going on for years,” said Craig Hoffmann, general counsel for the American Society of Pension Professionals and Actuaries, Arlington, Va. “Our record-keeping members thought they were done. There needs to be some balance between clarification and new obligations that were a surprise to many of us.”
Messrs. Goldbrum and Hoffmann are among those saying Labor Department officials should have formally proposed a new rule, asking for public comment and then issuing a final regulation.
Otherwise, industry members say, the uncertainty and complexity of the guidance will make sponsors and providers more vulnerable to fiduciary duty lawsuits by participants and beneficiaries.
DOL officials say no new regulation is needed because the guidance is simply a clarification of existing regulations, according to industry representatives who met May 31 with Phyllis Borzi, assistant secretary of labor for the Employee Benefits Security Administration, and other Labor Department officials.
“We're happy to comply (with fee disclosure regulations), but this goes beyond the regulations,” said Kent Mason, a partner with law firm Davis & Harman LLP, Washington. The DOL's guidance “should not have the force of law.”