Industry Groups Warn DoL not to Regulate ‘Generally Accepted Investment Theories’

The groups commended the DoL for maintaining the Congressional intent of the Pension Protection Act in allowing employers to provide investment advice to workers, but warned that prescribing specific parameters on what constitutes a generally accepted investment theory is inconsistent with the statute and the department’s longstanding positions on the operation of a retirement plan in compliance with the Employee Retirement Income Security Act’s fiduciary requirements.  

The groups’ letter specifically warned that providing regulations on what constitutes generally accepted investment theories would have repercussions beyond the use of a computer model under the statutory exemption, and “emphatically urge[s] the DoL to reject this idea.”  

The letter contended that Congress recognized that “generally accepted investment theory” is a fluid concept with general principles and subject to change. “The statute and the Department’s own guidance recognize that an auditor will apply their expertise and training, not a strict methodology, in determining whether an investment theory is generally accepted,” the letter stated. 

The groups also explained that the term “generally accepted investment theories” was first used in Interpretive Bulletin 96-1 as a way to reference industry standards while also retaining flexibility, so as not to impose any particular investment approach or philosophy that could become dated over time, and that retirement plan fiduciaries recognize the different philosophies between active management and passive management, and varying participant preferences as evidenced by the inclusion of both active and passive investment options in most individual account plans.  

“If the DoL begins to prescribe investment theory then it will override the fiduciary obligations of the plan sponsor and professionals,” the groups argued.  “Moreover, from a practical perspective, any regulation of investment theory will make that theory the de facto investment model for every plan.  This result would be inappropriate, ineffective and potentially detrimental to many plan participants because it would result in a static proscription that would leave no room for new ideas even as they become generally accepted.”  

The groups also recommended that:

• The final rule clarify that historical performance is, among others, an appropriate and relevant consideration when distinguishing among investments in the same asset class; and
• The DoL clarify language concerning the fee-leveling exemption to state that no fiduciary adviser may receive any fee or other compensation “’that varies based in whole or in part on a participant’s or beneficiary’s selection of an investment option.”

The groups’ comments, which they said represent the employer point of view, are in response to the DoL’s re-proposed rule on investment advice (see “DoL Proposes Revamped Investment Advice Rule”).