The PRC and the National Employment Lawyers Association (NELA) commented to the DoL that an update to the 1975 rules is warranted, noting that there has been a seismic shift in the retirement plan world from defined benefit plans – in which investment advice was generally rendered to sophisticated plan fiduciaries – to self-directed defined contribution plans – in which investment advice is issued to individual participants, many of whom have only rudimentary financial literacy. In addition, the groups pointed out that mutual funds, and sellers and brokers for mutual funds, who played a relatively small role in retirement plans at the time ERISA was enacted, have become dominant players in the new order.
The comment letter also cited the change in variety and complexity of investment products, the exponential growth of ESOPs, and significant legal developments since the time the regulations were promulgated as reasons change is needed.
According to the PRC’s letter to Congress, certain segments of the dollar financial industry are now demanding that the proposed regulation be withdrawn. They contend that the DoL has not given them adequate opportunity to comment on the regulations; that the Department has not deferred sufficiently to other agencies; and that the proposed regulation will make it impossible for them to continue offering investment advice to participants in 401(k) plans and IRAs. PRC noted: “The reality is that the industry and other stakeholders have had ample opportunity to comment on the regulations. The Department has gone to extraordinary lengths to seek the input of the financial industry, consumer groups, trade associations, plan sponsors, individuals, and… the Department has consulted extensively with all other relevant governmental agencies.”
The letter said the regulation does not prevent firms and brokers from providing investment advice to 401(k) participants and IRA holders. “Rather, it merely requires them to give their primary loyalty to the working men and women who hire them and depend on their advice to build financial security for their retirement.”
PRC told Congress that by reducing conflicts of interest, the proposed regulation will make the market for financial advice fairer, more transparent, and more efficient. Over the long term, the regulation should reduce investment and administrative fees and result in a better quality of advice.Both the comment letter to the DoL and the letter to Congress can be viewed here.