Working through the technical terms of 408(b)(2) is not much different than putting together a picture puzzle. There are a lot of pieces which fit together in some very precise ways. But, in the end, the disclosures which are required are pretty straightforward and-even given the work needed to describe certain ”wrapped” services and estimating their
ERISA Metaphysics, Mysticism and Alchemy: Sales Compensation
Generally unnoticed in the DOL’s proposed fiduciary reg was the implicit recognition that the commissioned based sales function is important to the operation of the market, and that you can “sell” until the cows come home (a good friend tells me, by the way, that the cows actually do eventually come home), or until you become a fiduciary. Anyone familiar with the successful salesperson knows that they are only able to sell once they establish a level of trust with the plan fiduciary, which is why trade organizations are taking the DOL to task on the requirement that the salesperson, in order to be recognized as not being a fiduciary, must then advise the fiduciary (with whom a relationship is being forged) that he or she may have adverse interests to the plan.
However that language is eventually finalized, it raises an important question that hasn’t really been addressed well, being a sort of red-haired stepchild of ERISA: Just what is “sales”and how are commissions treated? Finding your way through it can be trying, as if its a practice in ERISA metaphysics, mysticism and alchemy.
It starts with the basic question of whether or not “sales” is considered a service. It does seems almost metaphysical, and would be amusing if it didn’t have a very real impact. Commissions from pure sales of an investment product to a plan from a party without an existing relationship to a plan (either on its own or through an affiliate) does not seem to be governed either by 408(b)(2) or by the prohibited transaction rules. “Sales,” by itself does not seem to be a service covered by 408(b)(2), and the payment of a commission to a someone who is not a party of interest may raise fiduciary concerns if too much is paid, but it is NOT, in itself, a prohibited transaction. But there are times where sales and the payment of commission may eventually be considered services, where there becomes an ongoing, supportive relationship.
Lets go over some “pure sales” scenarios, with the impact of “sales as service” perhaps being handled in a future blogs:
Continue Reading ERISA Metaphysics, Mysticism and Alchemy: Sales Compensation
403(b) Terminations Under Revenue Ruling 2011-7: Establishing the Base
The IRS issued its long awaited guidance on the termination of 403(b) plans, with Revenue Ruling 2011-7. TEGE was well attuned to the challenges of terminating 403(b) plans, and its staff moved quickly to address some of the basic issues related to this "newly found" ability, provided by the 403(b) regulations, to treat the
Annuity Investment Accounts and 408(b)2
The DOL’s newly delayed 408(b)(2) regs are particularly striking in that they demonstrate a growing sophistication, and efficiency, on the part of the EBSA staff in its approach to retirement plan financial products and services. The regs are short, by almost any measure of federal regulations, yet they are packed with meaningful rules which will apply in different ways to different product and services.
The marketplace is a fast moving one, with complex instruments and services being used in new and unusual ways. Keeping up with this whirlwind is a challenge for the industry and employers, let alone a government regulatory agency which must somehow craft rules which have broad application to ever-shifting, complex and unanticipated circumstances. Though not always successful, the DOL is approaching its learning curves impressively-including the way in which continues to seek to know and understand what it does not.
A prime example of this is the manner in which the 408b2 rules apply to variable investment accounts within the annuity contracts used to fund 403(b), 401(k) and other 401(a) plans. What is fascinating is that the word "annuity" only shows up with regard to IRAs; the words "individual," "group," "variable," "fixed," "registered," or "non-registered"-all of which are descriptors of a variety of different sorts of annuity contracts- never show up; and the word "insurance" only appears once. Yet, it provides clear guidance on how these investment products are to be regulated.
Lets take a quick look at the way the rules apply differently to registered variable annuity separate accounts (lets call these "Type 1" for purposes of this blog) typically used in the 403(b) market, and the way they apply to non-registered variable annuity separate accounts (which I’ll call "Type 2") typically used in 401(k) plans.
This, by the way, is important for plan sponsors to know because they have to sort out whether they are receiving the disclosures they need, and report it to the DOL if they are not.
The 403(b) 81-100 Trust Under Rev Rul 2011-1: It Ain’t What It Seems
This was modified 12/28 at 6:18 a.m.
The IRS issued Revenue Ruling 2011-1, under which it will allow the combining of 403(b) assets with 401(a) assets in the 81-100 trusts.
Or maybe not. Take a look at the details, and it really doesn’t seem to be able to do much of what it says
Opportunity Missed: Obscure IRS Shift Provides Contradiction Instead of Clarity for DC Annuities
The seemingly obscure issue of when a payment from an annuity contract purchased under a Defined Contribution plan is considered to be a "payment from an annuity" is actually one of the most pressing tax issues that needs to be resolved in the area of DC annuitization. Resolution of this issue determines when spousal consent
Participant fee disclosure, 408(b)(2) and the new Schedule C: The 403(b) Impact of DOL’s Three-Pronged Approach to Transparency
I have finally been putting together the pieces on how all of these new DOL transparency rules will affect 403(b) plans. It is, in many ways, surprising. I’m not quite sure its even possible for many 403(b) plans to actually comply with key elements of the new rules, but at east we have some time
The REAL Problem With the New 12b-1 Rule: SEC’s Treatment of 401(k) Participants as 403(b) Participants
Much has been written about the SEC’s proposed changes to the mutual fund 12b-1 rules. The proposed rules have caused quite a stir in the retirement plan world, as so much of the costs of plan administration and distribution are funded by these arrangements.
What is being overlooked, however, is a much more disturbing
Prudence, not Prescience: A Suggestion for a Fiduciary Standard for DC Annuity Purchases
The question of what the appropriate fiduciary standard should be in assessing the insurer insolvency risk when purchasing annuities by defined contribution plans continues to be a tough one.
It is also one of the critical issues to be resolved if the efforts to encourage lifetime income from these plans is to be successful. The
The 403(b) Unfair Labor Practice
“Unfair Labor Practice” 403(b)
Continue Reading The 403(b) Unfair Labor Practice