There have been so many articles written about what to expect in 2010 that I almost skipped this sequel to my last post; however, it’s a light news week in the employee benefits world, and the items I saved for Part 2 are more interesting.
This year looks to be a busy one when it comes to all things fiduciary-related. Two of the biggies are fee disclosure and participant investment advice.
Fee Disclosure
The main point of contention on fee disclosure is whether providers must break down fees into their component parts such as recordkeeping, administration and investment-related costs or whether a consolidated total is sufficient. If itemized fee disclosure becomes the rule of the day, the so-called “free 401(k)” will be a thing of the past and service providers will have to show value for the sometimes exorbitant fees that have been lurking in the shadows for years. It will also create a level playing field for those providers that have long been disclosing there fees as a best practice.
Participant Investment Advice
Going on 4 years after the PPA gave us a statutory framework for providing investment advice to participants charged with devising appropriate long-term asset allocations for themselves, we are still awaiting final regulations. Actually, final regs were issued in the closing days of the Bush Administration, but the Obama Administration’s DOL called a “do-over.” Congress was concerned about commission-based advisors directing participants to options that pay higher commissions. To address that concern, commissioned advisors were only permitted to give advice generated by a computer model. The problem is that the final, delayed, delayed, withdrawn regulations allowed these advisors to present the computer-modeled advice and then give their own off-model recommendations. The current DOL has voiced its intent to issue new regulations that more closely follow the statutory guidelines.
Conflicts of Interest
This is a broad category of issues that includes the two discussed above. While not at the regulatory stage just yet, some accepted practices are being questioned. Should a broker continue to receive higher and higher commissions as plan assets grow even though little or no additional work is required? Should ongoing commissions be paid at all to someone who sells a plan and disappears? Should all plan investment professionals be subject to the same set of fiduciary-like standards?
One of the more intriguing questions is whether a fee-based investment advisor acting as a fiduciary to a plan should be permitted to handle IRA rollovers for former employees of a plan he or she advises. The individual will most likely pay higher fees in an IRA than remaining in the plan, and the advisor will likely earn more compensation on those assets in an IRA than in the plan. Should this be analogized to a commission-based advisor recommending a high-commission investment or is there value in the continuity of the advisory relationship? There is an interesting article on the subject here.
From Roth conversions and DB(k) to fee disclosure and conflicts if interest, 2010 promises to hold a little something for everyone.
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