Data Deadline and DOL

Today, SIFMA along with IRI and FSR responded to the Department of Labor’s (DOL) request about what information we trades and our member firms could provide as part of the Department’s “expanded” regulatory impact analysis of their proposed change to the definition of a fiduciary under ERISA, which impacts 401(k) plans and Individual Retirement Accounts (IRAs).

The bottom line of our letter: we continue to work with our member firms on identifying information we can provide to the DOL, but many questions remain, especially just how the Department will use this information.

Let’s start at the beginning. The definition of a fiduciary under ERISA has been a well established concept for more than 35 years. The regulation is straight forward and workable, where fiduciaries know they are fiduciaries and all parties know where the line is drawn

In July 2010, the Department of Labor issued a proposed regulation that would change that definition, creating a blurry line. The proposed rule would also cover IRA participants. Since it was issued, we expressed a number of concerns about the proposal, including the lack of a sufficient cost-benefit analysis, and the effect such a definition change would have on millions of IRA holders and retirement plan participants.

After a considerable amount of effort, DOL agreed to re-propose their rule and conduct a more thorough cost-benefit analysis about how their proposal could affect retirement plan participants and IRA holders. We supported that decision.

On December 22, 2011, however, we received a letter from DOL dated December 15, 2011 asking for what can only be described as a massive amount of customer data stretching back 10 years. The DOL said it needed this data to conduct a more in-depth cost-benefit analysis.  Their deadline for producing it? January 22, 2012.  It was an impossible deadline to meet.

Then, in a subsequent letter sent through regular mail, the DOL requested what data points from the original request we would be able to provide. The letter originally had a response deadline of February 17, but that was ultimately extended by a week because most of the trades received their letters the day before the deadline—February 16th.  In fact, SIFMA received the actual letter on February 22nd.

In our efforts to continue to try and be helpful to the DOL, our letter discusses the issues behind such a complicated data request and how difficult it is to obtain the information in an easily accessible format.  Additionally, since a large amount of the information the DOL seeks is kept in PDF format, firms run the risk of disclosing significant amounts of client information that, under certain other laws, cannot be disclosed.  We also do not know how the DOL would prevent client data from being publicly exposed without violating the Freedom of Information Act (FOIA).

Most importantly, however, we questioned what kind of methodology the DOL is planning on using in their regulatory impact analysis, and therefore why they need this data

As you can see from our letter:

Should the proposal move forward as proposed, individuals will no longer have access to asset allocation assistance or guidance regarding the benefits of raising their deferral rate. There will be limited retirement planning help, as well as the guidance necessary to educate about the tax consequences of taking a withdrawal, loan or hardship distribution. Even simple discussions regarding saving in the appropriate retirement plan or helping clients make pre-tax or post-tax distribution decisions will become cost prohibitive or obsolete. These are education efforts undertaken by many advisors which could turn them into fiduciaries under the Department’s proposal which will then limit the availability of these services. This will impact individual retirement savings and needs to be assessed by the Department to determine the cost of the proposal. Unfortunately we do not see any evidence in the request that the Department sent to us that the Department is even remotely considering these costs. Of course, if the Department already understands and concedes these costs, perhaps it has determined that no further data is necessary.

Needless to say, the DOL needs to be more upfront about what their methodology will be in their analysis because we believe if the DOL actually sought data that could assess whether conflicts negatively impact returns, the data would prove them wrong.

This process is not yet over and we remain engaged with the DOL.  The consequences of their proposed changes to the definition of fiduciary under ERISA could affect millions of IRA holders and retirement plan participants.

Stay tuned.

Lisa Bleier
Managing Director