More Regulatory Guidance Expected

August 1, 2013 ( – Plan sponsors and advisers are awaiting more regulatory guidance about a number of important issues.

During a webcast presented by Matrix Financial Solutions, a Broadridge company, Pam O’Rourke, senior vice president and senior counsel of Integrated Retirement Initiatives, noted that the Department of Labor (DOL) will re-propose regulations about who is considered an investment fiduciary under Section 3(21) of the Employee Retirement Income Security Act (ERISA). “Under the revisions, more advisers would be classified as fiduciaries. A release of these regulations is scheduled for late 2013, possibly October.”

O’Rourke expects the re-proposal to include additional exemptions and clarifications. She said the DOL regulations will probably be issued before a similar Securities and Exchange Commission (SEC) uniform fiduciary standard initiative. “While there is a bill in the U.S. House of Representatives, called the Retail Investor Protection Act, designed to delay the DOL regulations until the SEC final rule, this bill is not expected to interfere with the DOL regulations.”

O’Rourke said that, with regard to ERISA fiduciary issues, capturing individual retirement account (IRA) rollovers is a hot topic. Currently, a nonfiduciary adviser giving advice on rolling over to an IRA does not result in fiduciary status. However, this is not the case with a fiduciary adviser, where giving IRA rollover advice is potentially a prohibited transaction under ERISA.

“Given the results of a study released by the GAO in March on this topic [see “Solutions Exist for Easier Plan-to-Plan Rollovers”], fee disclosures for IRAs could be expanded, possibly to something like a 401(a)(4) comparative chart,” she said. “Since IRAs hold at least $5 trillion in assets according to most statistics, additional guidance on this topic and IRA support services is expected.”

Fee Disclosures

O’Rourke mentioned that activity around plan fees has increased since 408(b)(2) server provider disclosures took effect. “They include a fiduciary mandate to collect and evaluate service provider disclosures and fees—benchmarking of fees and an ongoing obligation to … monitor these fees to make sure they are kept in check,” she said. “Also, the industry has already begun to see increased DOL enforcement efforts in this area.”

She reminded attendees that, as a result of requests from plan administrators and service providers, the DOL provided a one-time transition to let plans reset their 404(a)(5) disclosure date for their investment comparative charts (see “Plan Sponsors Can Reset Disclosure Date”). “This was detailed in FAB 2013-02, and it was a nice administrative relief that many in the industry had been requesting.”

Matt Sommer, vice president and director of Janus Capital Group, addressed the recent issue of Ian Ayres, a professor at Yale Law School, sending out letters to a number of retirement plan sponsors saying their plan-related fees are above average (see “Improve Your Plan—Or Else?”). “One thing people have to factor in is that the Form 5500 data he was using was from 2009 and a lot has changed since then. I think the whole situation made a lot of noise but didn’t accomplish much.”

Other Expected Regulatory Activity

Sommer indicated he has heard that some plans being audited by the Internal Revenue Service (IRS) are being asked for documentation about training on legislative and regulatory issues, “even though no uniform standards for such training currently exist.” He pointed out that such training provides an advantage to investment committees in many ways, including the fact that they can see what their peers are doing.

O’Rourke reminded attendees that the DOL is seeking comments on the use of lifetime income illustrations in participants’ benefit statements and also directed attendees to the Lifetime Income Calculator at

With regard to in-plan Roth conversions, O’Rourke pointed to a number of potential benefits including protecting significant appreciation in the value of investments, hedging against higher taxes in the future, diversifying the tax status of retirement income, estate planning options and reducing required minimum distributions. But, Sommer noted, research has shown low usage of Roth features by employees, with one issue being that either employees lack the money to pay the upfront taxes or that money has been earmarked for other purposes. “There is definitely more conversation about Roth conversions, but many are still awaiting guidance on the topic,” O’Rourke said.

Presenter Cindy Dash, COO of Matrix Financial Solutions, mentioned that the issue of changing tax treatment for retirement savings is still on the table. “It’s been a ‘perfect storm’ of lack of job creation, the deficit and the actual savings of people being decreased. If I’m the small business owner and my incentive to save money myself in a plan that I am sponsoring is taken away, plus [I have] potential conflicts as a fiduciary, I may ask why I should have a plan at all.” Dash also observed that there is a disconnect with many in Congress, who believe retirement plan deferrals are actually deductions (see “ASPPA Comments on Tax Expenditures Report”). O’Rourke agreed, emphasizing the need for those in the retirement industry to educate people on the difference.