The Employee Retirement Income Security Act (ERISA) requires fiduciaries of pension plans to perform certain due diligence on service providers and plan investments. This helps ensure that the fiduciary is acting in the best interest of the plan's participants. The Department of Labor (DOL) proposed a change to the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) that would have expanded the scope of those who become fiduciaries, which will capture more of the current services of 401(k) and IRA providers. This proposal would have forced investors from commission-based accounts to higher cost fee-based advisory accounts, that could ultimately lead to a number of negative consequences for individual investors, including limiting investor choice, limiting investor access to education regarding retirement accounts, and increased costs for saving.
After significant objections were raised by SIFMA and numerous other groups and Members of Congress, the DOL announced it would withdraw and re-propose the definition of fiduciary regulation while also conducting further economic analysis. The proposal would affect millions of IRA holders and plan participants with assets expect to reach $7.3 trillion by 2016. In February 2015, President Obama announced that the DOL should move forward with its proposed rulemaking. In the coming months, the DOL is expected to issue a notice of proposed rulemaking which will be followed by a period for public comment.
Representatives and Senators from both the Democratic and Republican parties have sent a letter to the DOL and Office of Management and Budget (OMB) raising concerns with the proposed regulation and expected re-proposal. These concerns have ranged from the impact on an individuals’ choice of provider to potential unintended consequences limiting access to education for millions of individuals saving for retirement.
*See also our page on Fiduciary Standard
SIFMA has ongoing concerns that the Department of Labor (DOL) proposal could adversely affect retirement savers, particularly middle class workers. The new regulation could limit investor choice, cause inconsistencies as different regulators would apply different standards to the same retirement accounts, prohibit access to investor guidance, and raise the costs of saving for retirement
As the process moves forward, the Office of Management and Budget (OMB) must review the proposal in detail as it has the potential to cause a detrimental impact on all American savers and the retirement system as a whole. OMB must consider the fact that the brokerage industry is highly regulated by both the U.S. Securities and Exchange Commission (SEC) and Financial Regulatory Authority (FINRA), including with respect to retirement accounts, and in particular, recent guidance by FINRA with respect to rollovers.
When available, SIFMA will review the anticipated notice of proposed rulemaking closely.