DOL big: 12(b)-1 fees, revenue sharing part of the fiduciary package

Advisers are in for a longer-than-expected wait for the Labor Department’s fiduciary re-proposal, an agency official said. But one good bit of news: The department will address revenue sharing and 12(b)-1 fees when it issues the rejiggered proposal.
Deputy Assistant Labor Secretary Michael Davis said the department was working on a set of exemptions to its list of prohibited transaction that would go along with the agency’s re-proposal of the rule defining who is a fiduciary when working with retirement plants. The proposed regulation would expand the category under the Employee Retirement Income Security Act of 1974.
“We said we wanted to take the time to get it right,” Mr. Davis said at the American Society of Pension Professionals and Actuaries’ 401(k) Summit in New Orleans. “We will have a set of prohibited transaction exemptions … and we’re working on getting it released as a package.” The issues the department is expected to address include 12(b)-1 fees, revenue sharing and principal trading.
Mr. Davis noted that the department would be looking for comments from the industry to ensure that it hears a balance of viewpoints.
“That’s why we’re delivering the exemptions at the same time as the regulation,” Mr. Davis said. “We’re going to take the time to get it right, and if it takes a little longer, then it takes a little longer.”
While the department initially had hoped to get the rule out in May, individuals who follow the rule-making process say that the regulation hasn’t been sent to the Office of Management and Budget, which takes 90 days to review rules it receives.
The measured pace shows that the department is trying to be responsive to the industry’s concerns, but advisers to retirement plans still worry that the regulation will deter commission-based arrangements. “There is still concern over their mandating certain business models over others,” said Brian Graff, chief executive of ASPPA. “Small business plans are sold and not bought, and our concern is that [the department] will be so biased toward fee-based advice,” he added, noting that unless the regulation accommodated commission-based brokers, few will be willing to work with those smaller plans.
It’s been a long and contentious battle to get the rule re-proposed. The DOL has been sparring with industry groups, including the Financial Services Institute Inc. and the Financial Services Roundtable, in an attempt to conduct economic and cost-benefit analyses of the proposal. Most recently, the agency asked industry groups for cost and performance data on individual retirement accounts. The groups answered that they were unable to provide information.
Mr. Davis added that the department also anticipates issuing guidance for open multiple employer plans, which are retirement plans set up by a group of small but unassociated employers to help spread the cost of providing the plan. Though typical MEPs involve employers that are related to each other and are currently permitted, the DOL is concerned that open MEPs could potentially lead to abusive arrangements. The department has seen some of that harmful activity in the multiple-employer welfare area.
“We have had issues with multiple employer welfare arrangements,” Mr. Davis said, including examples of “operators going across state lines, taking [participants’] money and not providing benefits.”

Related Topics: Retirement Income Summit