Empower, SPARK Push Back Against Fiduciary Proposal

Empower, the country’s second largest retirement recordkeeper by assets, filed a letter with the Department of Labor on Thursday, calling for the full withdrawal of the department’s retirement security proposal, sometimes called the fiduciary adviser proposal.

Empower, a Great-West Life Inc. company, manages plans totaling $1.4 trillion in assets for 18 million investors, according to the letter.

The DOL proposal would extend fiduciary status under the Employee Retirement Income Security Act to various one-time recommendations, including rollovers, annuity sales and the sale of investment menu lineups to plans.

The letter, signed by Edmund F. Murphy III, Empower’s president and CEO, explains that the proposal would create obstacles to plan creation and could effectively ban many sales conversations between providers and plans or individuals.

Empower argues that the proposal would cover routine sales conversations that have not traditionally been considered a fiduciary function, particularly sales of rollovers and investment lineups to new plans.

“Many recordkeepers offer thousands of fund options for evaluation,” the letter states. To winnow down these options into a proper menu, “plan fiduciaries and advisers not only need assistance from product providers and recordkeepers, they expect it.”

The letter continues, “If product providers and recordkeepers determine that this rule is too difficult to apply to everyday conversations, these conversations will be eliminated. This will hurt the plan sponsor and ultimately participants.”

Many sponsors also solicit recordkeepers and managers to respond to a request for proposal. These RFPs can permit sponsors to shop recordkeeping services if they are unsatisfied with their current provider or to update the services provided by their current provider. Empower’s letter argues that these prolonged sales conversations “are tailored to meet client needs” and would likely fall under the DOL proposal.

Empower is the first major recordkeeper to submit a comment letter before the January 2 deadline. The SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, an advocacy organization for the retirement plan industry, also called on the DOL to withdraw the rule during oral testimony at a hearing on December 12.

Adam McMahon, a partner in the Davis & Harman law firm, spoke on behalf of SPARK at the hearing. McMahon emphasized that the proposal would likely apply to a wide range of educational materials and services, such as those intended to track portfolio diversification, account balances or financial habits.

For example, a feature provided by a recordkeeper which walks a participant through the process of deciding between a hardship withdrawal and a loan “might recommend or suggest that a participant take a loan, instead of a hardship withdrawal, in order to minimize tax penalties or preserve savings for retirement. Under the current five-part test, these tools, which make no reference to specific investments, are not fiduciary investment advice. Under the proposal, however, they would be treated as fiduciary advice.”

McMahon added that the proposal would turn ordinary plan sales conversations with potential sponsors into fiduciary advice: “[Non-fiduciary] treatment is appropriate, as we do not believe that plan sponsors, even small plan sponsors, expect that a sales representative marketing its own firm’s plan is providing fiduciary-level investment advice.”

McMahon argued that such an expansion of fiduciary status would reduce access to these services or severely increase their cost and called upon the DOL to withdraw the proposed rule.

Concerns about initial sales conversations and educational materials arose on both days of the hearings. Tim Hauser, the deputy assistant secretary for program operations at the DOL, asserted that the proposal is only intended to regulate recommendations or a “call to action” and not educational materials and “hire me” conversations. Hauser invited stakeholders to comment on how the DOL could clarify this in the final rule.

The recordkeeping industry joins the insurance industry in its opposition to the proposal. So far, most actors in the advice industry and consumer advocacy have voiced support for the proposal.