There have been so many articles written about what to
expect in 2010 that I almost skipped this sequel to my last post; however, it’s
a light news week in the employee benefits world, and the items I saved for
Part 2 are more interesting.
This year looks to be a busy one when it comes to all things
fiduciary-related. Two of the
biggies are fee disclosure and participant investment advice.
The main point of contention on fee disclosure is whether
providers must break down fees into their component parts such as
recordkeeping, administration and investment-related costs or whether a
consolidated total is sufficient.
If itemized fee disclosure becomes the rule of the day, the so-called
“free 401(k)” will be a thing of the past and service providers will have to
show value for the sometimes exorbitant fees that have been lurking in the
shadows for years. It will also
create a level playing field for those providers that have long been disclosing
there fees as a best practice.
Participant Investment Advice
Going on 4 years after the PPA gave us a statutory framework
for providing investment advice to participants charged with devising
appropriate long-term asset allocations for themselves, we are still awaiting
final regulations. Actually, final
regs were issued in the closing days of the Bush Administration, but the Obama
Administration’s DOL called a “do-over.”
Congress was concerned about commission-based advisors directing
participants to options that pay higher commissions. To address that concern, commissioned advisors were only
permitted to give advice generated by a computer model. The problem is that the final, delayed,
delayed, withdrawn regulations allowed these advisors to present the
computer-modeled advice and then give their own off-model recommendations. The current DOL has voiced its intent
to issue new regulations that more closely follow the statutory guidelines.
Conflicts of Interest
This is a broad category of issues that includes the two
discussed above. While not at the
regulatory stage just yet, some accepted practices are being questioned. Should a broker continue to receive
higher and higher commissions as plan assets grow even though little or no
additional work is required?
Should ongoing commissions be paid at all to someone who sells a plan
and disappears? Should all plan
investment professionals be subject to the same set of fiduciary-like
One of the more intriguing questions is whether a fee-based
investment advisor acting as a fiduciary to a plan should be permitted to
handle IRA rollovers for former employees of a plan he or she advises. The individual will most likely pay
higher fees in an IRA than remaining in the plan, and the advisor will likely
earn more compensation on those assets in an IRA than in the plan. Should this be analogized to a
commission-based advisor recommending a high-commission investment or is there
value in the continuity of the advisory relationship? There is an interesting
article on the subject here.
From Roth conversions and DB(k) to fee disclosure and conflicts if interest, 2010 promises to hold a little something for everyone.