The highly disputed and delayed decision to fundamentally alter ERISA and expand the fiduciary role to advisors of 401(k) plans will be determined early in 2015.
Or will it? The matter is so contentious, and its unintended consequences for advisors, individuals and small- to mid-sized group plans so potentially detrimental, that the political will, or absence of it, may further delay the DOL’s decision.
A months-long commenting period for industry to weigh in, followed by many more months of legislative hearings, could very well push the matter into 2016 – an election year. And that may sap the political will to get anything done.
The AARP, which has been a staunch lobby for expanding fiduciary obligations to advisors of 401(k) plans, is no doubt hoping the DOL will consider the perspective of plan sponsors in its recent research.
Nearly nine in 10 plan sponsors “strongly” or “somewhat” favor requiring plan advisors to give advice that is in the best interest of plan participants, according to an AARP survey.
Just as many (89 percent) sponsors say advisors should be required to explain to plan participants if indeed they are legally beholden to act in their best interest.
Some of the AARP data may support the advisory industry lobby. As plan sponsors signal strongly that they would favor expansion of the fiduciary rule, an equal number (91 percent) say they already “completely” or “somewhat” trust their plan provider to offer investment advice that is in the best interest of plan participants.
One of the AARP’s arguments for expanding the rule comes from the fact that 65 percent of sponsors say their providers offer one-on-one consultation to plan participants.
And while the powerful lobbying group acknowledges that most people trust financial professionals to offer advice based on the best interest of the one being advised, a legal requirement to do so is nonetheless necessary.
“Unless that advisor is under a legal requirement to act in the plan participant’s interest (that is, under a “fiduciary duty”), that advisor could be offering advice that aims at improving the advisor’s own finances, rather than those of the plan participant,” according to an AARP statement concerning employers’ perspectives.
A previous AARP survey found that 93 percent of plan participants want fiduciary duty to be in effect when receiving advice.
“The results of the two AARP surveys are a strong, almost uncontestable vote for the principle that the financial advice provided to those in retirement plans should be in the best interest of the plan participants, not in the best interest of the advisor,” said Cristina Martin Firvida, AARP’s director of Financial Security and Consumer Affairs.
“We continue to urge the Department of Labor to proceed with an updated rule that ensures greater financial protection for workers and their families.”
Will their urging ultimately matter? Time will tell, but likely not anytime soon.