Tom Anderson, RITA’s President, who was accompanied by Mary Mohr,RITA Executive Director, just completed his testimony in
Mary L. Mohr, Executive Director, Retirement Industry Trust Association
Washington to the Department of Labor (DOL).
He reported that the hearing held by the Department of Labor (“Department”) on their proposed changes to the definition of who is a fiduciary under ERISA and IRC 4975, has concluded. Individuals representing thirty-three organizations or firms each had ten minutes to present to a panel of Department of Labor Leaders including the Assistant Secretary of Labor for Employee Benefits, Phyllis Borzi.
There was an almost unanimous denunciation of the Department’s proposal by all parties, with the most common complaint being concerns about the impact a change in status would have on the costs of doing business for many industries. Some even questioned the feasibility and even the viability of continuing to maintain certain business due to the burden that a fiduciary status would have on them. Some of the specifics noted were increases in the costs for insurance, documentation, training, staff, liability, liability insurance and litigation. Some felt the fiduciary status would present a conflict with their current code of ethics and standards of conduct because it would remove them from a position of providing independent advice to one where they had a fiduciary responsibility to their client; a situation which could influence and bias their decision. This particular issue was debated at length by the representatives of organizations that perform valuations and appraisals.
Tom W. Anderson, president of the Retirement Industry Trust Association, RITA testifies to the Department of Labor on their proposed changes to the definition of who is a fiduciary under ERISA and IRC 4975
Most speakers noted a concern for potential conflicts and redundancies between the DOL’s proposal and similar regulation changes coming from other regulatory agencies such as the SEC. The Department stated that they understand the need to “harmonize” their proposal with such agencies and they intend to do so. Finally, many speakers challenged the facts and research on the part of the Department that apparently lead to the proposal, with some claiming that there was no documented basis for changes to current legislation and if their was a benefit, that is was far outweighed by the cost. Many wanted to make the Department aware that if their proposal was aimed at helping the consumer by raising industry standards and accountability and to facilitate the Department’s enforcement to deal with bad actors, that there had to a corresponding recognition of the cost of implementation and ongoing compliance. Frustrated speakers, who felt that the impact analysis was lacking, pointed out that such costs would ultimately be passed along to the consumer.
Tom Anderson, representing RITA stressed that RITA members should not be considered fiduciaries merely because they are obligated, under the Internal Revenue Code, to report asset values (obtained from third parties and fiduciaries such as plan or IRA trustees) for assets held. In addition, he stated that the fact that RITA members provide basic information to IRA holders concerning the tax, processing, and rules regarding IRA distributions, should not make members fiduciaries as indicated in the proposal. Lastly, Mr. Anderson indicated that the class exemption granted defined contribution plan administrators from the fiduciary designation for providing their customers with educational material and a platform for mutual fund and trade processing, should be extended to IRA custodians as well.
Like others, Mr. Anderson pointed out what he feels are the likely consequences, many of which he feels might be unintended, that would result and impact to the self-directed IRA industry if the current proposal was enacted, and urged that the Department reconsider. He asked that at the least, that the DOL add clarifying language to exempt directed IRA custodians from the fiduciary designation status, as they have no conflict of interest and do not perform valuations. Mr. Anderson closed his remarks by thanking the department for the opportunity to speak and offering to assist with their project in any manner if so desired.
Mr. Anderson feels that the outcome from industry input at the hearing has highlighted many issues that the DOL will have to consider and reconcile. This no doubt will likely significantly impact the final result and the timing of its implementation, originally planned for year-end 2011.
Copies of the presentations will be posted in a few days to the Department’s web-site and will remain for another 15 days.