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DOL Addresses Investment Regulations at Western Benefits Conference

admin | July 29, 2011 | 0 Comments

News from the Field
2011 Western Benefits Conference

(LAS VEGAS–July 25, 2011 ) Michael L. Davis was appointed as Deputy Assistant Secretary of the Employee Benefits Security Administration (EBSA) on May 5, 2009. Mr. Davis assists the Assistant Secretary in directing policy, regulatory, enforcement and public assistance functions of the office responsible for administering the Employee Retirement Income Security Act (ERISA) and several health benefit laws. He also serves as a liaison to other government agencies and the private sector on a variety of issues relating to ERISA. The employee benefit plans under EBSA’s jurisdiction hold over $5 trillion in assets and cover approximately 150 million US workers, retirees, and their dependents. (Biographical information courtesy of the US Department of Labor website).

Mr. Davis’ interest in the activities of the EBSA began several years ago. As a Wall Street investment banker, and later, asset manager, he saw firsthand the seriousness with which plan sponsors took their fiduciary responsibilities and some of the inadequacies of investment regulations, especially in the area of retirement assets. He hit the ground running at the EBSA by helping Assistant Secretary Phyllis C. Borzi to address disclosure issues that had been raised about target funds, especially those used in company retirement plans, in light of the market turmoil in 2008. Together, they are helping to bring more clarity to plan sponsors and to employees as to what target date funds are and how to use them in planning for retirement.

For Mr. Davis, investment disclosure has become a hallmark of his service at EBSA. He believes plan sponsor and employee awareness and understanding of investments leads to better decision making, and that transparency adds value.

One regulation that was in formation from the last administration, 408(b)(2), is designed to bring much greater fee transparency for plan investment, administration, record keeping, and custody service fee levels from providers to retirement plan sponsors. Also, Mr. Davis indicated that the last key issue that EBSA had to resolve with this rule was whether to require a summary disclosure document. EBSA has resolved this issue and transmitted the final rule to the Office of Management and Budget (OMB) for review last week. The effective date for this final regulation is April 1, 2012.

Mr. Davis also talked about the participant-level fee disclosure regulation, based on Section 404(a)(5) of ERISA, which is focused on the disclosure of retirement plan fees and investment returns to retirement plan participants from plan sponsors. Part of this new regulation, which has been issued in final form, will include guidance to produce model charts that will comprise basic investment return and fee information for participants.

Mr. Davis then turned to the current issue of the definition of an investment fiduciary. The 1974 ERISA legislation gave fiduciaries the responsibility of protecting employee retirement plan assets by acting in a prudent manner and solely with the best interest of the employees in mind. ERISA also said that if you provided investment advice for a fee, that you were also a fiduciary and should be held to these same standards. However, in 1975, EBSA developed a five part test to identify whether an individual was acting as an investment fiduciary. Under the five part test, most liability is left with the retirement plan sponsor alone. An updated test would make investment advisers more accountable for the advice they provide by expanding the scope of who is a fiduciary. Mr. Davis indicated that an expansion of the definition of an investment fiduciary is meant to further insure that advisers act in the best interest of plan sponsors and employees.

Lastly, the Deputy Assistant Secretary called for nominations to serve on the ERISA Advisory Council. This is a council of 15 people, representing different groups specified by law, with five spots rotating annually, that assemble to advise the Secretary of Labor on issues pertaining to retirement and health security. Nominations are due by September 16, 2011, and can be submitted to the Department of Labor website.

Mr. Davis ended the session by proudly saying that his daughter, Maya, had selected his tie for his presentation.

—Michael T. Anderson
2010 WBC Programs Co-Chair and Past President, WP&BC-Los Angeles
Vice President of Retirement Planning
Finestone Partners/Raymond James Financial Services, Inc.
Beverly Hills, California.