Defined contribution industry executives are optimistic that after nearly four years of work and intense debate, the Department of Labor's proposal for updating a 40-year fiduciary standard for anyone giving retirement investment advice will finally bring greater protection for their participants and more transparency from service providers.
The core concept of the new proposal, released on April 14, requires all money managers, investment consultants and firms that are compensated for dealing with retirement savings to do so in their clients' best interests, and to disclose when there are potential conflicts. The DOL's categories for such advice are investment recommendations (e.g., whether to rollover assets, or rebalancing); investment management recommendations (e.g., asset allocations and specific investments); appraisals of investments; or recommendations of investment advice providers or asset managers.
Several new prohibited transaction exemptions allow for current arrangements for compensation, fees and educational services to plan sponsors to continue under a new “best interest contract” exemption. A 401(k) platform provider that “merely markets and makes available” investment alternatives would not be considered an investment fiduciary.
Most DC plan executives contacted for this story declined to speak on the record, or to comment until they had read and digested the 1,000-page proposal.
“It seems like it's going to be good protection,” said Deborah Forbes, executive director of the Committee on Investment of Employee Benefit Assets, Bethesda, Md., which represents more than 100 of the largest corporate plan sponsors with $2 trillion in combined assets. CIEBA members have been particularly concerned their plan participants get too much pressure and not enough impartial advice when it comes to taking their 401(k) distributions when they leave a company.
Also seen as a plus to the latest proposal is a new exemption for sophisticated investors, allowing them to continue to hear new ideas from managers and investment consultants without scaring the consultants away. “Our members need the complex modeling and innovative ideas from service providers, and the rule shouldn't get in the way of the free flow of information to large plan sponsors,” said Ms. Forbes.