The Labor Department is poised to issue a regulation that clarifies who is a fiduciary under federal retirement law.
The Labor Department is poised to issue a regulation that clarifies who is a fiduciary under federal retirement law.
The agency could promulgate the rule as early as this week, according to Phyllis Borzi, assistant Labor secretary for the Employee Benefits Security Administration. The regulation will apply to investment advisers who counsel retirement plans and their participants.
“It more clearly defines who is and who is not a fiduciary under the statute,” Ms. Borzi said in an interview Tuesday at the American Society of Pension Professionals and Actuaries’ annual conference in National Harbor, Md., just outside of Washington.
The regulation, which will modify a provision in the Employee Retirement Income Security Act, has not been updated since ERISA first went into effect during the Ford administration.
“The world has changed since 1975,” Ms. Borzi told the ASPPA audience during a panel presentation. She pointed out that 401(k) retirement plans didn’t exist at the time. Since then, an enforcement and litigation history has developed around the issue.
The proposed regulation has been reviewed by the Office of Management and Budget. It will be announced once a Federal Register publication date has been determined. The Labor Department will then seek public comment.
“We know this [rule] will spark a lively debate among the regulated community,” Ms. Borzi said.
The regulation will add to the flurry of rulemaking under way at the agency. Last week, it promulgated a final regulation requiring greater disclosure of 401(k) fees.
Another rule on the verge of being released is an amendment to regulations for qualified deferred investment alternatives. The proposals will outline the kind of information participants must receive when a target date fund is used as a QDIA.
“We’re very close to closure with OMB,” Ms. Borzi said.
A bill recently approved by Congress will spur regulatory activity at the Treasury Department. A small-business-lending measure includes a provision that allows 401(k) plans to execute conversions to Roth IRAs without having to move the assets outside of the plan. Prior to the new law, a conversion could occur only when money was pulled out of the plan and put into an individual retirement account.
Regulators are responsible for filling in the details. J. Mark Iwry, deputy assistant Treasury secretary for retirement and health policy, said that the agency would develop rules that prevent participants from taking their money out of employer plans after a distribution is made under the new law.
The new flexibility in Roth IRAs rollovers “should not cause leakage in our retirement system,” Mr. Iwry said at the ASPPA conference.
“It’s been left to Treasury and the IRS to interpret the statute — to be faithful to the language and congressional intent,” Mr. Iwry said. “We are hoping to provide guidance on this pretty quickly.”
Other efforts that Ms. Borzi and Mr. Iwry discussed do not involve imminent regulations but do focus on retirement policy. For instance, their agencies are studying lifetime-income options for retirement funds.
Ms. Borzi said that the trend toward defined-contribution plans is leaving workers vulnerable to outliving their retirement nest eggs.
“That concerns a number of us,” Ms. Borzi said. But she emphasized that her agency will not “force … a one-size-fits-all solution” and instead will consider incentives for plans to establish an income stream on a voluntary basis.
Mr. Iwry said that the assessment was not launched with any preconceived notions. The agencies have received 800 comments so far.
“It’s not clear that more annuities are the right thing for everyone,” Mr. Iwry said. “It’s an individual decision.”
He acknowledged that adding income streams to retirement plans will not be painless. It will “involve a trade-off with cost and a trade-off with complexity as well as portability.”
It may take a while to develop the proposal. “I’m not quite sure what our next steps are,” Ms. Borzi said.
In the meantime, she’s plenty busy with current rulemaking.
“Crazy would probably be the understatement of the year,” she said in reference to the demanding Labor Department regulatory agenda. “My life is such that I don’t even know what day it is.”
