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• Require more retirement investment advisers to put their client’s best interest first, by expanding the

types of retirement investment advice.

• Preserve access to retirement education.

• Distinguish “order-taking” as a non-fiduciary activity.

• Carve out sales pitches to plan fiduciaries with financial expertise.

• Commit the firm and adviser to providing advice in the client’s best interest.

Mark Johnson, Ph.D., J.D.

817-909-0778

mark@erisa-benefits.com

Consulting services in:

• Fiduciary liability

• 401(k) and ESOPs

• Pension benefits

• Bankruptcy

• Cash balance conversions

• Group life & health plans

• Health plan reimbursement

• Long term disability benefits

• Retiree medical plans

• Severance benefits

• Survivor benefits

• Third party administrators

• VEBA plans

Proposed Fiduciary Rule Elicits Strong Debate

The Department of Labor (DOL) in April released a revision to its

fiduciary rules intended to close a perceived loophole that allows for

potential conflicts of interest between a retirement investment

adviser and plan participants.

As reported in June’s article, “Department of Labor Issues Proposed

Fiduciary Rule on Investment Advice,” the DOL’s Notice of

Proposed Rulemaking (NPRM) revises the longstanding regulation

on who is an ERISA fiduciary, extending it to more retirement

advisers, investment managers and broker dealers, to further protect

retirement savings.

Because these changes will affect millions of IRA savers and

retirement participants, the DOL provided an open forum for

stakeholders to provide feedback before public hearings took place

the week of August 10. The DOL received 2,254 comment letters

and hosted four days of hearings featuring 75 witnesses.

Proposed Fiduciary Rule Recap

The DOL believes it has put forth a proposed regulatory package

that is balanced in terms of increasing protections while minimizing

disruptions to good market advice. It seeks to:

• Make more advisers fiduciaries and ensure they are held

accountable to their clients if they provide advice that is not in their

clients’ best interest.

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• Warrant that the firm has adopted policies and procedures designed to mitigate conflicts of interest.

• Disclose any conflicts of interest clearly and prominently. This includes hidden fees often buried in the

fine print or backdoor payments that might prevent the adviser from providing advice in the client’s best

interest.

Pros & Cons - Weighing In

Ask and you shall receive. Highly-charged commentary from a wide variety of letter-writers and

testimony from witnesses at the hearings—including insurers, asset managers, attorneys, compliance

officers, investor advocates, CEOs, and even a fraud inspector—pointed to the proposed rule’s far-

reaching impact.

Proponents of the measure assert that the rule would curtail broker incentives that essentially put clients

into high-fee products and erode their retirement savings. Critics argue the rule is flawed and will leave

lasting negative effects that will actually harm modest investors in the long run.

Here is a sampling of some of the pros and cons brought forth:

The Plan Sponsor Council of America asked the DOL to change their stance on investment

education materials, so investment alternatives available under a plan could be identified on these

materials without being deemed investment advice.

Kenneth E. Bentsen, Jr., president and CEO of the Securities Industry and Financial Markets

Association (SIFMA), is in agreement that more can be done to help Americans save for

retirement, but “We believe DOL is the wrong regulator to be in the lead here and the rule as

written completely misses the mark.”

The ERISA Industry Committee wrote that more changes were needed to avoid increasing

regulatory burdens, costs and uncertainty among plan sponsors, plan participants and service

providers.

The CFA Institute, representing 120,000 chartered financial analysts and other investment

professional members, “believes the proposal does a good job of accommodating various

business models while still requiring investment service providers to act in their clients' best

interest.”

Charles Nelson, CEO of retirement at Voya Financial, testified that a customer bill of rights

would be better than a new fiduciary standard and go “a long way toward informing participants”

in retirement savings accounts about what they are paying in fees and transaction costs.

Don Trone, CEO of 3ethos, a company that focuses on regulatory and compliance issues, believes

the DOL’s procedures could be challenged in court.

Congress also added its comments:

Rep. Maxine Waters, D-Calif., ranking member of the Financial Services Committee, and Bobby

Scott, D-Va., ranking member of the Education and Workforce Committee, along with several

other Democratic House members, called for a new standard to address IRA rollover advice and

other recent practices, in their letter to Secretary of Labor Thomas Perez.

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GOP members said the rule as written would “cut off vital financial advice” for low- and middle-

income families and small business owners, and ban “some of the most basic advice,” such as

rolling over assets from 401(k) accounts.

What’s Next

Although momentum is supposedly with proponents, it is expected that even more modifications will be

made before a final rule is approved as a result of the vigorous response. Once the transcript of the

hearings is published in the Federal Register, another comment period will re-open for up to 45 days.

Labor Secretary Thomas Perez has indicated that the DOL is open to making alterations, but with a final

rule scheduled to be released next spring, time is short to make widespread changes to the 1,000+ page

measure. In the meantime, some financial services firms are preparing for potential new compliance costs,

while others just see this as a first step in a longer process of fiduciary evolution.

ABOUT THE AUTHOR. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a

former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has

practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He

works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree

medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in

bankruptcy; long term disability benefits; and cash conversion balances. He can be reached at 817-909-

0778 or www.erisa-benefits.com.

ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and

does not engage in the practice of law. August 2015