What is the Baseline for A Committee to Act in the Best Interest of Its Participants? (Part 1)
This is the fourth of a new series of articles titled “The Bests.” The series focuses on Best Interest and Best Practices. Those topics give me flexibility to discuss a range of subjects that affect both service providers, including advisors, and plan sponsors, including 401(k) and 403(b) committees.
The recent decision in the case of Sacerdote v. New York University is a classic story of the good and bad of plan committees. Let’s start with the bad.
Five current and former committee members testified at the trial. But not all of the testimony was helpful.
In the opinion, the Court said that the testimony of one of the co-chairs “was concerning.” The court went on to say:
She made it clear that she viewed her … Read More »
Best Practices for Plan Sponsors: Projection of Retirement Income
This is the third of a new series of articles titled “The Bests.” This series focuses on Best Interest and Best Practices. Those topics give me flexibility to discuss a range of subjects that affect both service providers, including advisors, and plan sponsors, including 401(k) committees.
My first two posts of “The Bests” were about Best Interest for advisors. In this article, I am shifting to Best Practices for plan sponsors. Keep in mind that a Best Practice is above and beyond the legal requirements. Best Practices are not mandated; they are elected.
While the most obvious Best Practices are automatic enrollment and automatic deferral increases, I want to start with the projection of retirement income for participants. That’s partially because it is in a current legislative proposal—in the Retirement Enhancement and Savings … Read More »
This is the second of a new series of articles titled “The Bests.” This series focuses on Best Interest and Best Practices. Those topics will give me flexibility to talk about a range of subjects that affect both service providers, including advisors, and plan sponsors, including 401(k) committees.
In my last post, I discuss the remarkable similarities among the SEC’s proposed Regulation Best Interest, the SEC’s proposed Interpretation for investment advisors, the DOL’s Best Interest standard of care (which is a combination of ERISA’s prudent man rule and duty of loyalty), and the New York State Best Interest standard for sales of annuities and insurance products. All of those rules require that advisors act with care, skill, prudence and diligence, and that they place the interests of the investor ahead of their own.
In the first post, I conclude that the Best … Read More »
What is the “Best Interest?”
This is the first of a new series of articles titled “The Bests.” This series will focus on Best Interest and Best Practices. Those topics will give me flexibility to talk about a range of subjects that affect both service providers, including advisors, and plan sponsors, including 401(k) committees.
For this inaugural article, let’s talk about the meaning of “Best Interest.”
There are at least four Best Interest standards. (While “best interest” can also refer to management of conflicts of interest, this article is about the best interest standard of care.)
ERISA’s best interest standard of care for plan sponsors and fiduciary advisors for private sector retirement plans. (While ERISA doesn’t literally have a best interest standard—because the Best Interest Contract Exemption was vacated by the 5th Circuit Court of Appeals, that best interest standard was a combination of … Read More »
I recently testified before the Department of Labor’s ERISA Advisory Council on the subject of lifetime income. More specifically, it was about lifetime income products and services for retirees provided through defined contribution plans. Here are my opening comments:
Thank you for this opportunity to testify.
I am Fred Reish, a partner in the law firm of Drinker, Biddle and Reath. However, this testimony is not on behalf of the firm, but instead represents the views of my partner, Bruce Ashton, and myself.
As a starting point, it is helpful to have a foundation for development of recommendations. For example, I suggest:
The conversation about defined contribution plans needs to increasingly and emphatically include retirement income.
Plan sponsors and participants need good quality, reasonably priced retirement income products and services.
Plan sponsors need clear, objective and implementable guidance on how to do that.
Participants need information, education … Read More »
Now that I have completed 100 articles about interesting Angles on birth –and death–of the DOL’s Fiduciary Rule, and the birth of an SEC best interest standard for broker-dealers and RIAs, I am going to start on a new series. The new series, rather than being titled “Angles,” will be called “The Bests.”
So, from now on, my articles—maybe the next 100—will focus on two “bests”—the SEC’s best interest standard and best practices for advisors and plan sponsors.
I figure that the SEC’s best interest rules will be developed and implemented over the next year or two, giving me a wealth of materials for new articles. But, I don’t want to be limited to that. I think that it’s important to talk about best practices for retirement plans and retiree investing and withdrawing, with a focus on helping participants to and through … Read More »
Investment Advisers and the SEC’s Interpretation of Their Duties: Part II
This is my 100th article about interesting observations—or “angles”—concerning the Department of Labor’s Fiduciary Rule and the SEC’s “best interest” proposals.
Part I of this post discussed the application of the SEC’s best interest standard to recommendations to participants to take distributions and rollover to IRAs. It also discussed the apparent requirement for a thoughtful and professional process to develop the recommendation. However, it reserved for this post, Part II, the factors to be considered in that process.
The RIA Interpretation lists a number of factors to consider in the best interest process. However, most of them apply to investment recommendations, rather than advice about distributions. But a few are helpful. For example, the costs of investments and services and consideration of the investor profile are relevant factors.
Under Reg BI, though, the … Read More »
Investment Advisers and the SEC’s Interpretation of Their Duties: Part I
This is my 99th article about interesting observations concerning the Department of Labor’s (DOL) Fiduciary Rule and the SEC’s “best interest” proposals.
The SEC labeled its interpretation of the standard of care for RIAs (the “RIA Interpretation”) as a proposal. However, in that proposal, the SEC explained that the RIA Interpretation was based on the SEC’s current understanding of the duties of investment advisers. More specifically, the SEC described the RIA Interpretation as reaffirming and clarifying the RIA fiduciary rule: “. . . we believe it would be appropriate and beneficial to address in one release and reaffirm—and in some cases clarify—certain aspects of the fiduciary duty that an investment adviser owes to its clients under section 206 of the Advisers Act.”
As a result, investment advisers should treat the RIA Interpretation … Read More »
Regulation Best Interest: Consideration of Cost and Compensation
This is my 98th article about interesting observations concerning the Department of Labor’s fiduciary rule and the SEC’s “best interest” proposals.
The SEC’s Regulation Best Interest (Reg BI) proposes a number of major changes to the governance of broker-dealers. For example, it imposes a best interest standard of care on recommendations of securities transactions and it requires that material conflicts of interest involving financial incentives be eliminated or, alternatively, disclosed and mitigated. Based on the SEC’s examples of mitigation, it appears “real” mitigation is expected and not just existing practices with more disclosure.
There are other significant changes. For example, there is an increased focus on the costs and compensation related to recommended securities transactions and investment strategies. The SEC’s discussion explains that:
“[O]ur proposed interpretation of the Care Obligation would make the cost … Read More »
Regulation Best Interest Recommendations by Broker-Dealers: Part 3
This is my 97th article about interesting observations concerning the Department of Labor’s (DOL) fiduciary rule and the SEC’s “best interest” proposals.
In my last two articles—Part 1 and Part 2 on this topic, I discussed the fact that proposed Reg BI and its best interest standard of care for broker-dealers did not apply to all of the recommendations made by broker-dealers. The proposed best interest standard for broker-dealers will apply only to securities transactions recommended to “retail customers.” (Reg BI defines a “retail customer” as “a person, or the legal representative of such person, who . . . uses the recommendation primarily for personal, family, or household purposes.”) I compared that to the SEC’s Interpretation for RIAs, which applies to all advice to all clients. This article gives examples of how the proposals … Read More »