In letters to the Department
of Labor, the securities industry and Senator John Kerry (D-MA) expressed
concern about Q&A 30 in a recently issued Field Assistance Bulletin 2012-12,
involving retirement plan participant disclosures. Senator Kerry and the
securities industry asked DOL to withdraw Q&A 30 and pursue this issue
through a formal rulemaking, which would allow for the appropriate level of
public comment and notice with respect to this element of the guidance. Their
main concern is that Q&A 30 does not provide interpretative guidance
regarding the disclosure obligations but rather sets forth new rules that were not
previously contained in any previous DOL guidance. Specifically, Q&A 30
states that plan fiduciaries may have liability if they do not designate a
manageable number of investment alternatives and if they do not provide the
regulatory disclosures with respect to investments in which a significant number
of participants are invested through a brokerage window available under the plan.
While not expressing any
position regarding the substance of Q&A 30, Senator Kerry fears that the
lack of advanced warning and the inability of the regulated community to comment
will have serious unintended consequences for plans. Further, because there is
no delayed effective date with respect to actions against plan fiduciaries
pursuant to Q&A 30, these new rules are effective immediately. With respect
to brokerage window investments, the general due date for disclosures may
technically be August 30. Senator Kerry noted that, due to the lack of advance
notice, a vast number of employers will not be able to comply in any way by the
August 30 deadline. The Senator has also become aware that many experts on
small business plans are concerned that these rules and potential liabilities
could result in the termination of many small business plans.
In its letter, SIFMA was troubled by the fact that the Department has
changed well-established law and policy regarding plan fiduciaries’ duties and
imposed new requirements with respect to investment selection and monitoring,
all done through a FAB that was intended to clarify participant disclosure
compliance issues. The DOL indicates that the failure to designate a manageable
number of investment alternatives raises questions as to whether the plan
fiduciary has satisfied its obligations under ERISA.
The securities association noted that DOL has never
suggested in any rulemaking that a plan sponsor’s decision to comply with
Section 404(c) of ERISA by making available the broadest range of investment
alternatives through a brokerage account or window could somehow be viewed as
violating Section 404(a). The SIFMA letter was signed by a number of organizations
representing a significant part of the retirement plan community, including the
Investment Company Institute, the American Bankers Association, and the
Investment Adviser Association.
Also troubling to the industry is DOL’s failure to
provide guidance as to when or how any fiduciary would comply with this newly
created fiduciary principle. By articulating a new fiduciary principle in the form
of an answer to a question in the FAB without any of the public input that
accompanies an appropriate rulemaking process, continued SIFMA, the Department
exposes plan sponsors to the substantial risk of litigation over the number of
investment options offered by a plan. In addition, Q&A 30 creates fiduciary
consequences for plan sponsors through the challenge they will face in
identifying or not identifying securities in brokerage windows as designated
investment alternatives. In this regard, SIFMA noted that, heretofore, the
fiduciary obligations associated with the construction of an investment menu
for a 401(k) plan have been viewed by most as limited to ensuring that designated
investment options are prudent, not whether they include too many or too few choices.