Voya Financial says it understands it is the Department of Labor’s (DOL’s) intent to better protect workers and retirees, but it is “very concerned” that the DOL’s new fiduciary proposal would likely do the opposite, jeopardizing retirement income, accelerating leakage from retirement plans and limiting participants’ and IRA owners’ access to information.
In a comment letter to the DOL, Voya says the proposal has unduly complicated provisions and its proposed new restrictions on educational information will make it more difficult and costly for service providers to reach and help participants and IRA owners, an outcome that is not in the participants’ and IRA owners’ best interests.
“One primary reason is that the proposal would impose procedural burdens on even very basic communications resulting from recasting many of these communications as ERISA fiduciary ‘investment advice.’” the letter says. “Rather than erecting barriers, the proposal should facilitate these vital discussions. Otherwise, the combination of burdens in the proposal as well as the substantial penalties and other legal liabilities that can result from inadvertent fiduciary status may have the unintended effect of decreasing the level of professional assistance and the range of retirement products and services available to many plan participants, particularly terminated plan participants and IRA owners.”
Among other issues discussed in the letter, Voya says it believes the proposed defintion of when a person is rendering “investment advice”—and, thus, is acting as a fiduciary—is too broad and vague. More specifically, an “understanding” that a “recommendation” is “directed to” a plan is too subjective.
As an example, Voya says, under the proposal, simply providing investment-related information could be alleged by a recipient to have been investment advice. It could be construed to include a mailing addressed to a recipient by name that discusses an investment product. In a similar vein, enrolling a new participant in an employer’s retirement plan often involves offering that individual an opportunity to transfer funds from a prior plan to a new plan where permitted. The proposal would likely make these discussions fiduciary advice, requiring an analysis of the prior plan and the current plan to develop specific advice to engage in the transfer. As a consequence, these services may be dramatically reduced or eliminated.
“The Department should clarify that, where a person performs an actuarial, accounting, legal function, or acts as a ministerial service provider merely making participants aware of services, benefits, rights and features available under a plan, the services will not be deemed to be ‘investment advice’ or give rise to fiduciary status,” the letter says.
Voya also notes that as currently written, the Seller’s Carve-Out in the fiduciary proposal would apply only to certain large plans as defined by asset size or number of participants. The proposal notes, “[t]he overall purpose of this carve-out is to avoid imposing ERISA fiduciary obligations on sales pitches that are part of arm’s length transactions where neither side assumes that the counterparty to the plan is acting as an impartial trusted adviser….” Like larger plans, smaller plans benefit from more, not less information; restricting the Seller’s Carve-Out will lead to less information being provided to them, Voya says.
In addition, the language currently in the Seller’s Carve-Out covers only a sale, purchase, loan or bilateral contract, leaving other interactions somewhat ambiguous, including information provided to a plan sponsor as part of a request for proposal (RFP) by a prospective service provider or as part of an on-going service model geared to facilitate the plan sponsor’s fulfilment of its fiduciary responsibilities, according to Voya. The company suggests that the language in the Seller’s Carve-Out should be broadened to cover any services and other interactions with plans where the terms of the carve-out are otherwise met, including, for example, where services are pursuant to a service agreement with a plan sponsor for ministerial services for a reasonable fee to ensure the orderly administration of a plan.
In its letter, Voya contends the complexities and practical challenges of applying the proposal’s “Best Interest Contract” (BIC) exemption to day-to-day activities of many financial advisers render it unworkable and would ultimately prove counterproductive. Voya notes that an individual’s request for even basic guidance could cause an adviser to suspend the discussion and send the individual a contract. This would draw out the process and may make the individual uncomfortable. In addition, if an individual is comparison shopping, he or she could experience multiple scenarios such as this.
“The end result may be that many individuals simply eschew seeking basic guidance, instead making decisions on their own or based on friends’ or co-workers’ guidance. Alternatively, individuals may decide simply to pull their money from tax-advantaged retirement vehicles altogether. Neither of these outcomes are the type of result aimed at by the proposal,” the letter says.
In addition, Voya notes, due to costs and complexities, many advisers will no longer be willing or able to service individual IRAs or small companies that offer their employees IRA retirement vehicles, and if an adviser determined to continue serving these accounts and plans, the fees for doing so would rise substantially, due to significantly increased fiduciary exposure, the additional time and resources to provide fiduciary services, and the cost and resources needed to provide the required new disclosures.
Voya suggests that rather than requiring a document that must be executed and returned by potential customers—which will likely not occur in many situations, forestalling an informed conversation—the DOL should consider a more user-friendly form of basic disclosures that would serve much the same purpose. “This disclosure—a customer’s Bill of Rights, if you will, receipt of which could be acknowledged by the recipient—could set out key disclosures, terms and the potential conflicts that an adviser faces (if applicable). Such a disclosure document could be required to be delivered before money is invested or a fee is received.”
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