Fiduciary Issues

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There are substantial efforts underway in many parts of the industry to develop similar sorts of benchmarking tools for assessing, comparing and monitoring the growing variety of lifetime income programs for defined contribution plans. A very real challenge these developers face arises from the fundamental difference in the nature of the investments involved: existing equity based assessment tools translate poorly into critiquing programs where decumulation risks are the critical factor. Even the language used to produce these new tools is demanding a new mind set.
Continue Reading Benchmarking Outcomes, Not Fees

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There is much to be considered under the new set fiduciary rules recently proposed by the DOL, especially as we sort through the (very extensive) details of this new regulatory regime. We are already hearing much about the impact and change which would be introduced into the market over the expansive reach of this new…

Actuaries and mathematicians will tell us that the “actuarial cost” of any annuity you may purchase is effectively the same, no matter what sort of annuity you purchase. After all,  your life expectancy is what it is; the interest rates are what they are; and the insurance companies investments supporting the lifetime guarantees are what…

The DOL’s new ESG rules may have a curious impact on some church related organizations which utilize faith based standards in their retirement plan investments. Their ability to continue do may now turn on the manner in which they handle their status as a “church plan.” It arises because the ESG rules will NOT apply…

We spend a lot of our time focusing on ERISA’s “Prohibited Transaction” rules, which extensively cover the manner in which compensation is paid under retirement plans, and how it is disclosed. Lurking darkly in the background behind all of our  discussions of fee disclosure and how the prohibited transaction rules apply under 408(b)(2), however, is something most of us in the benefits world typically pay little attention to: the U.S. Criminal Code and 18 USC 1954.
Continue Reading Remember, Some Sorts of Compensation Is Flat Out Illegal, Not Just “Prohibited”

A common misunderstanding between 408(b)(2) and 404(a)(5) is the nature of the requirements: 408(b)(2) requires the service provider’s contract with the plan’s fiduciary contain certain, specific terms. It does NOT require that those fees be disclosed to participants, nor does it require annual disclosure. It is simply a business matter between the fiduciary and the service provider. The only time a follow-up “disclosure” is ever required is if there is a material change in the contract’s terms (including the service fee), and then that disclosure is only required to be made to the plan fiduciary.
Continue Reading The Use, and Impact, of 408(b)(2) and 404(a)-5 Are Often Confused

The Business Roundtable issued a press release  on August 19 signed a the CEOs of the largest companies in the U.S. outlining a “Statement on the Purpose of a Corporation .” In it, the CEOs outlines a ” modern standard for corporate responsibility” or, as Jamie Dimon, CEO of JP Morgan Chase and the Chair of the Business Roundtable stated,” Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.”

I not only believe that the Business Roundtable has it right, but it is a position that properly frames the issues for the ERISA  investment fiduciary: prudent  assessment of an investment must take into account a broader view than the narrow financial analysis of the books and records of the company, or of current market pricing. Particularly for ERISA fiduciaries, the investment standard is long-term, to provide retirement income. Any valid, long-term  analysis has to be able to take into account the social, political, market  and scientific trends which will inevitably affect the investment’s value…
Continue Reading The Business Roundtable’s Statement of “Balancing Needs” Demonstrates the Valid Counter to DOL’s ESG Approach

It is worth now considering of the impact of 2008 MOU between the SEC and the DOL on fiduciary enforcement, with the publication of the SEC’s new Reg IB on fiduciary duties and the suggestions from EBSA that a a new fiduciary rule will be closely related to that of the SEC. What will happen where you have two broadly empowered federal agencies working from what may be the same playbook (or at least very similar ones), where you already have a well established, coordinated cross-enforcement structure in place?
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Continue Reading Will the DOL/SEC’s 2008 “Memorandum of Understanding” Achieve New Gravitas After Reg IB?

One of the key  EBSA National Enforcement Projects is the “Plan Investment Conflicts Project” or PIC project. It is the “next generation” of fiduciary compliance programs that the DOL has developed over the years, with this one building on those past programs which had looked at compensation conflicts, 408(b)(2)  compliance and 404(a)-5 disclosures. It appears to be using standard, plan level investigations to instigate reviews of selected practices of large financial service companies, as opposed to having to open large service provider investigations to get to the answers being sought.  …
Continue Reading The DOL’s “Plan Investment Conflicts Project” Is Showing Up In Its Plan Audits: Who Should Be Responsible For Watching the “Black Box”?