DOL fiduciary rule would hurt small business retirement plans, study says

Thirty percent of those surveyed “somewhat likely” to dump 401(k)s, but critics call study flawed

May 14, 2014 @ 11:57 am

By Mark Schoeff Jr.

A pending rule from the Labor Department that would expand the definition of “fiduciary” for financial advisers to retirement plans would force a significant number of small businesses to eliminate their retirement programs or curb benefits, according to a new study.

About 30% of small businesses polled indicated that they would be at least “somewhat likely” to drop their plan under a more comprehensive fiduciary-duty rule, fearing that they would have increased regulatory costs and liability.

The study also showed that 49% would cut back on their employer matches for plan contributions and 47% would increase the fees charged to plan participants.

Critics questioned the assumptions made in the study, saying that it misrepresented the potential DOL rule.

The findings were based on a survey of 607 executives at businesses with up to 500 employees, which was conducted between November and January. The study was conducted by Greenwald & Associates and co-sponsored by the U.S. Hispanic Chamber of Commerce and Davis & Harman, a consulting firm that represents a coalition of financial services organizations.

A spokesman for Davis & Harman declined to identify the members of the coalition.

“The DOL expansion of fiduciary duty will only impede the ability of small firms to offer their employees retirement plan accounts, thus hindering American workers from saving for a reliable future,” Javier Palomarez, president and chief executive of the Hispanic Chamber, said in a statement.

Backers of the study have expressed opposition to the pending DOL rule since it was first proposed in 2010 as a way to help protect workers from conflicted advice as they manage their own direct-contribution retirement plans.

It was withdrawn amid fierce protest from the financial industry, which argued it would raise regulatory costs for brokers and curtail their ability to service small retirement accounts.Opponents worry that the rule will prohibit commissions and revenue-sharing between brokers and mutual fund companies. The DOL has stated several times that commissions will be allowed under the re-proposed rule.

The DOL is expected to re-propose the rule later this year.

A supporter of the DOL's work on the fiduciary duty issue said that the study is meaningless because it's based on an inaccurate description of what the DOL rule likely would do.

The survey was based on the assumption that the DOL would prohibit plan providers and brokers from assisting employers in selecting and monitoring funds placed in a retirement plan. It assumed that employers would have two options — hire an independent expert for investment guidance or make the selections themselves and increase their fiduciary liability.

“It's based on a lie,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “The question that they asked is patently false. It grossly mischaracterizes the DOL rule proposal. No wonder people said, 'This will be horrible.'”

Ms. Roper said that Wall Street is desperate to stop the DOL rule.

“As the DOL inches closer to getting their rule out, [the financial industry is] pulling out all the stops to try and make sure the rule re-proposal never emerges,” she said.

Another group also attacked the study.

“The results in the survey released today are inconsistent with the findings of AARP's thorough research of employers' attitudes, which found widespread support for advice that meets a fiduciary standard,” Cristina Martin Frivida, AARP director of financial security and consumer affairs, said in a statement. “Our own survey interviewed 3,010 plan sponsors — roughly five times as many businesses as the research released today — across many industries.”

But a major Wall Street trade association praised the survey.

“This study provides yet another example of the harm that can be done to American investors and small businesses if the DOL moves forward with its proposal,” Kenneth Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, said in a statement. “While the DOL's actions are well-intended, the reality is that the outcome of its proposal will likely do more harm than good at a time when Americans cannot afford to lose a single dime of their future savings.”

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