Subtracting “Surprise” from the Equation

Brian Graff, Executive Director/CEO of ASPPA, spoke in front of the Employee Benefits Security Administration (EBSA) panel. The ASPPA statement highlighted two areas of the proposal that would bring improvements to the retirement industry, as well as two areas of it that may be damaging.

The first improvement ASPPA would like to see enacted relates to clarifying whether advice is “ERISA-covered” or not—a topic that would confuse many plan sponsors.  As Graff stated: “When a broker/adviser is helping a small business owner set up a 401(k) plan and says to the owner, ‘these are the 20 investment options that you should offer in your plan,’ that owner naturally thinks he or she is getting advice… In our members’ experience, these small business owners are surprised when they find out the ‘advice’ they have received for their ERISA-covered 401(k) plan is not actually ERISA-covered investment advice. We urge the DoL to remove this confusion by clarifying the definition so all parties—particularly plan sponsors can be sure they receiving the full protections under ERISA.”

The second area in which ASPPA and the DoL are in agreement is to discard the requirement that says advice must be given more than one time for it to be counted toward the five-part fiduciary test. “We agree that requiring advice be provided more than once to result in fiduciary status is inconsistent with the reasonable expectations of plan fiduciaries and simply makes no sense,” the statement said.

ASPPA changed its tune when it came to how broker/dealers (B/Ds) should disclose their intent. “…we believe the recommended disclosures required for commission-based brokers/advisers in the proposed regulation is over broad and unduly harsh. We suggest the DoL provide a model disclosure that explains: (1) the broker/adviser is not acting as ERISA fiduciary; (2) the advice may not be impartial if a commission is received, and (3) disclose compensation the broker/adviser will receive based on the investments selected.”

Lastly, ASPPA strongly urged the DoL to not include individual retirement accounts (IRAs) in the regulation due to “the fundamental differences between IRAs and qualified retirement plans.”

ASPPA’s complete statement can be seen here.