DOL, industry spar over fund lineups

At issue: Does providing a list of options constitute advice?

Mar 1, 2011 @ 4:01 pm

By Darla Mercado

The Labor Department and representatives from service providers and pension advocacy groups today sparred over whether presenting a retirement plan with a fund lineup constitutes investment advice.

“The plan sponsor looks to us to look across the platform and find funds that have met the criteria they identified,” said Karen Prange, executive director and assistant general counsel for JPMorgan Chase & Co. “Showing what's available on a platform shouldn't fall under the ‘fiduciary' definition.”

Ms. Prange was among the retirement industry representatives present at the Labor Department's two-day hearing in Washington to discuss the agency's proposed rule to expand the definition of “fiduciary.” The DOL is proposing that it drop its five-part test, which it said allows service providers and brokers to give advice while skirting the law, and replace it with a rule that would make anyone providing advice for a fee a fiduciary under the Employee Retirement Income Security Act of 1974.

Service providers and record keepers have been wary of the proposed regulation out of fear that everyday tasks, such as presenting a set of funds to a plan sponsor, might be considered a fiduciary act.

Ms. Prange, representing record keeper J.P. Morgan Retirement Plan Services, noted that disclosures and disclaimers proclaiming that a service provider is merely making funds available, and not trying to provide impartial investment advice, should help clarify to plan sponsors the role that service providers play.

“The current disclosures coming from plan providers, along with disclosures and disclaimers about the roles of the relationships, will further enhance each other and put plan sponsors in a stronger position,” she said

But Norman Stein, a senior policy adviser at the Earle Mack School of Law at Drexel University and consultant for the Pension Rights Center, questions whether plan fiduciaries and participants could really grasp those disclosures.

“There's a difference between a plan fiduciary for General Electric [Co.] and someone who runs a doctor's office,” he said.

Indeed, a study released by the Government Accountability Office yesterday revealed that many sponsors, especially those for smaller plans, don't understand whether service providers are acting as fiduciaries, and aren't aware that the provider's compensation might vary based on the funds the plan uses.

The same seems to be true for participants, the GAO found, as they may not understand that providers aren't fiduciaries, and tend to perceive investment education as advice. They may also turn to their plan's service provider for individual retirement account rollovers as they exit, but may not understand that fees are higher for investments outside of the plan.

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