The Labor Department's July 30 retreat from greater monitoring and fiduciary responsibilities by defined contribution plan sponsors for self-directed brokerage accounts was the product of much lobbying, discussion and debate.
The switch was due to “an intensive effort” of lobbying by industry members to contacts in the Office of Management and Budget, the White House and Congress, said Edward Ferrigno, the Washington-based vice president for legislative affairs for the Plan Sponsor Council of America. He didn't identify any contacts.
No single event or person was cited by those interviewed as being the catalyst for change.
Bradford Campbell, Washington-based counsel for law firm Drinker Biddle & Reath LLP, said the lobbying effort was notable because “employers and providers had the same sense of concerns,” especially the belief that the DOL was trying to create a regulation without a formal review.
“Process is important because it flushes out problems,” said Mr. Campbell, who was assistant secretary of labor for the Employee Benefits Security Administration from 2006 to 2009.
“My sense of watching this” is that when industry members didn't get a satisfactory response from the department, “everyone went to the White House and OMB, saying that this agency was not playing by the rules that you had defined,” Mr. Campbell said. “'We want you to tell them to back off' - and they did.”
The major irritant in the May 7 document on fee disclosure was a passage on self-directed brokerage accounts or windows. Industry participants interpreted this to mean sponsors and providers would have to keep track of all investments within brokerage accounts, checking if any investments crossed certain thresholds based on participants' use.
If such a threshold were crossed, a specific brokerage account investment would be considered a designated investment alternative and thus subject to additional monitoring and fiduciary responsibility for sponsors. Providers said this would require significant additional expense to create systems to monitor the investments.
The turnaround — from the department's May 7 guidance document — was pretty quick by regulatory standards, according to industry experts.
They were pleased with the revision because it removed wording they claim was an expensive, administratively complex and last-minute effort to create a new regulation without following formal regulatory procedures.
“We weren't trying to cause a big fight” by talking to legislators and congressional staff members, said Lynn Dudley, senior vice president for policy at the American Benefits Council, Washington.
But at the same time, she said, “we weren't confident that we were making the progress that we needed to make.”