DOL Activity in 2012

Posted on April 30, 2012, by Fred Reish in 404a-5, 408(b)(2), Broker-Dealers, DOL Activity, fiduciary, Plan Sponsors, Registered Investment Advisers, RIA, Service Providers, TPA. Comments Off on DOL Activity in 2012

At first blush, it seems like 2012 is the year of plan disclosures and participant disclosures. The 408(b)(2) regulation is effective July 1, 2012, and the 404a-5 regulation follows two months later. However, there is more DOL activity than initially meets the eye.

For starts, we have seen a significant uptick in DOL investigations. Those investigations fall into four categories: plan sponsors; accounting firms (for preparation of audited plan financial statements); third party administrators; and advisers (including both broker-dealers and RIA firms). After a number of relatively quiet years, the number of those investigations has increased significantly . . . at least in terms of the cases that we are handling.

Second, the DOL is working on a proposed regulation that would either require or facilitate the projection of retirement income on participants’ statements. We believe that the DOL will adopt an approach of projecting the account balance to a lump sum at either age 65 or 67; discount that amount for inflation, so that it is expressed in terms of today’s dollars; and then convert it to a lifetime income amount, either expressed as a monthly or annual dollar amount. The regulation will be a proposal, and there will be an opportunity for private sector comments. We expect the proposal to be issued this summer.

The third change is a re-proposal of the regulation on fiduciary investment advice. While there may be some changes (for example, perhaps some relief for IRAs), we expect the new proposal to be very similar to the initial proposal. If so, that could broaden the definition of fiduciary investment advice and, as a result, potentially increase the number of people who are classified as fiduciaries. While that will, in turn, cause a number of changes, we believe the biggest change will be a transition to level fees. That is, we expect that broker-dealers and other advisers will change from receiving variable (and potentially conflicted) compensation to a model where the compensation to the adviser is level, regardless of the investments that are recommended. At the moment, the best guess is that the proposal will be out in July 2012 – but in a Presidential election year, nothing in the government is predictable.

So, much is going on in the retirement plan world, and the changes will have significant practical implications.

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