Welcome to Executive Benefit Plans, Inc.

 

Main Link Column
Select this link Retirement Plans
Select this link Strategies
Select this link Employee Benefits
Select this link Individual Benefits
Select this link Participant Info
Select this link White Papers
Select this link Consulting Service
Select this link Proposal Request
Select this link Administration
Select this link Contact
Select this link News
Select this link Blog
Select this link Home
 

Plan Insight

APRIL 2010 Newsletter

Labor Dept.'s 401(k) proposal could rock pension advice business

The Labor Department today released proposed regulations that prohibit financial advisers giving advice to 401(k) plans, or their employer or the employer's affiliates, from receiving extra compensation because the plan sponsors bought a product recommended by the adviser.

“They can't take advantage of the exemption if anyone in that chain gets compensated [from the advice provided,]" Assistant Labor Secretary Phyllis Borzi said today in a conference call discussing the proposed rules.

The proposed regulations will make it more difficult for advisers affiliated with broker-dealers and insurance companies to provide advice to plan participants, industry observers said. The rules also may pose huge challenges for actively managed funds in the retirement space.

Many advisers had hoped that affiliates of the adviser's employer would be exempt from the rules. “We are disappointed the Department of Labor decided to move in this direction after having withdrawn the previous final regulations and class exemption,” Elizabeth Varley, managing director of government affairs of the Securities Industry and Financial Markets Association, said in a statement.

"The proposed regulation, if approved, will do little to expand American's access to investment advice.”
The proposal would apply to advisers who recommend target date funds, Ms. Borzi said. One of the major criticisms of target date funds, she noted, is that they often are made up of the investment managers' proprietary portfolios.
Under the proposal, if an adviser recommends a fund to plan participants and the adviser's compensation is affected directly or indirectly by that recommendation, it is considered a prohibited transaction.

The proposed rules also allow for the use of independent computer modeling for advice. The factors the model can take into account, however, caused some observers to wonder if it would create an uneven playing field in favor of index funds.
Elizabeth Varley: The proposal would not expand access to advice. Specifically, the rules suggest that while computer modeling can take into account factors like fees and expenses, it may not make sense to take into account historical performance when generating advice.

“If you aren't using historical performance, you are removing one of the primary justifications for fees for actively managed funds,” said Bradford P. Campbell, an attorney at Schiff Hardin LLP, who used to work at the Labor Department's Employee Benefits Security Administration.

Observers predict that the fund industry will weigh in heavily on this issue during the comment period since it could have huge effects on actively managed funds.

“It means that actively managed funds in the retirement marketplace would very much be in question and could lose market share,” said Ryan Alfred, co-founder and president of BrightScope Inc., which rates 401(k) plans.

When asked about this issue on the conference call today, Ms. Borzi said she welcomed comment on this question of historical performance. “There is a difference in opinion as to what extent historical returns are a predictor of future performance,” she said. “If people have concerns with how we have structured the regulation and want to address some of the questions, we urge everyone to participate in the discussion.”
 

Retirement Plans

Select this link Consulting Services

Select this link Qualified Plans

   Select this link Savings Calculator

   Select this link  401k

   Select this link Safe Harbor 401k

   Select this link Roth 401k

   Select this link SIMPLE 401k

   Select this link Profit Sharing

   Select this link Money Purchase

   Select this link Defined Benefit

   Select this link Cash Balance

   Select this link Successor Plan Rule

   Select this link IRC 401(a)

   Select this link ERISA 404(c)

   Select this link Prohibitive Transactions

   Select this link Fiduciaries

   Select this link Contribution Limits

   Select this link Controlled Groups

Select this link Other Plans

   Select this link IRAs

   Select this link 419(e)

   Select this link SEPs

   Select this link SARSEPs

   Select this link SIMPLE IRA

Other Links

Select this link Tests

    Select this link ACP Test

    Select this link ADP Test

Select this link Restatements

Select this link Amendments

Select this link Mistakes

Select this link Catch-up

Select this link Funding Limits

Select this link EGTRRA Q&A

Select this link Conduit IRA

Select this link Pricing

Select this link Quote

Select this link White Papers

Select this link FAQs

Select this link Glossary

 

 

Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM

 

Privacy Statement - Executive Benefit Plans, Inc. Copyright 1996 - 2015 All Rights Reserved - Legal Statement
Website Powered by UHSystems