One of the biggest steps is updating a 37-year-old fiduciary standard that was developed in a very different marketplace, said Phyllis C. Borzi, assistant secretary of labor for the Employee Benefits Security Administration. “We believe our work regarding the definition of fiduciary is key to addressing conflicted investment advice and related problems your report identifies,” Ms. Borzi said in a letter to the GAO. She declined further comment.
That has some retirement industry officials braced for bad news as the Labor Department tries to finish its controversial fiduciary rule update, which was sent back to the drawing board last year over industry protests and is now expected in July.
“We're open to discussing better transparency,” Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries, Arlington, Va., said in an interview. “But we would not support anything that would not allow participants to continue to work with plan advisers and providers that they've grown to trust.”
Plan participants facing rollover decisions should be protected by the fiduciary rule, said Ed Ferrigno, vice president of Washington affairs for the Plan Sponsor Council of America. “We think it clearly applies to this kind of advice, if (service providers) are making recommendations about what they should do. The bottom line is that today, 99% of people can absolutely disregard the fiduciary rule.”
Addressing sponsors' fiduciary risk “would be helpful,” said Ms. Reynolds of Mercer. “If we can clarify that for them ... it'd be in the best interests of participants for sponsors to be able to communicate. Sponsors are starting to get more comfortable and it gives them buying power. I am seeing them wanting to do more to keep assets in the plans, and something pointed from Washington would help encourage more active thinking.”
Some industry participants are not waiting for Washington to act. “I'm convinced that the industry is in the process of solving (what was) a glaring gap in the tool kit of the retirement industry,” said J. Spencer Williams, CEO of The Retirement Clearinghouse LLC, Charlotte, N.C., which works with plan sponsors and service providers to facilitate rollovers to a new employer's plan, or what he calls “roll ins.”
“It is in plan sponsors' interest to encourage new hires to roll in. You get a healthier plan with larger average account balances.”
Lew Minsky, executive director of the Defined Contribution Institutional Investment Association, which represents the range of industry participants from plan sponsors to investment managers to record keepers, agreed. “There is a lot that can be done behind the scenes to make it easier.”
“I think we've made a lot of progress” on making the documentation process less cumbersome,” said Mr. Minsky, who works in Jupiter, Fla. “The next big step is to build consensus and really fix some of the architecture in the system, and to address leakage. If we can do something to make it easier for participants to keep their money in the system, that's really big.”