A new report issued by the U.S. Chamber of Commerce says the Department of Labor’s proposed fiduciary rule will create new regulatory burdens on advisors to workplace retirement plans, the brunt of which will be borne by the country’s small businesses.

SEP IRAs and SIMPLE IRA plans, both designed to encourage small employer plan adoption, account for 10 percent of all IRA holdings, and held $472 billion in retirement savings by the end of 2014, according Brad Campbell, an ERISA specialist with Drinker, Biddle and Reath, and the author of the report.

“More complex regulations mean more hurdles and compliance costs, and a greater likelihood of lawsuits,” writes Campbell, who was the assistant Secretary of Labor and head of the Employee Benefits Security Administration before moving to the private sector.

The DOL’s rule would extend a fiduciary standard of care to all advisors to workplace retirement plans and IRA owners.

That would affect how advisors are compensated, and require thorough disclosures of commission revenue. Sales communications, and potentially other education materials, could be prohibited, and sample investment lineups could constitute investment advice, exposing advisors to greater liability, and ultimately affecting advisors’ ability to service small plans, thinks Campbell.

“Main Street advisors will have to review how they do business, and likely will decrease services, increase costs, or both,” he wrote

That stands to disproportionately impact smaller businesses with SEP IRA and SIMPLE IRA plans.

“Small businesses may find it even harder to offer retirement plans than they do today,” according to Campbell.

Both SEP IRA and SIMPLE IRA plans encourage smaller employers to sponsor plans by limiting employers’ record keeping and annual reporting requirements, while giving participants the chance to defer and invest more income than they would be able to in a stand-alone IRA.

Read: Wall Street bristles at new fiduciary standards

Perhaps most importantly, sponsors monitoring and fiduciary obligations are less stringent under SEP IRA and SIMPLE IRA plans. That limits their liability exposure.

The DOL’s proposal provides a carve out for advisors to larger plans with $100 million or more in assets, or at least 100 participants. Advisors to those plans will not have to be considered fiduciaries, because sponsors of those plans are large enough to carry fiduciary burdens themselves, according to reasoning in the DOL’s proposal.

But advisors to smaller plans will be fiduciaries, and beholden to all of the new regulations in the proposal, meaning they are likely to incur additional costs that ultimately are passed on to sponsors and participants.

“Some advisors to small plans may determine that the small-scale of such plans means the risk of changing business models and fee structures is not justified, and may no longer offer their services to small plans,” said Campbell.

Campbell says SEP IRA and SIMPLE IRAs are popular among small businesses because in part because they are cheaper to offer

Adding on extra regulatory burdens and costs to small plan advisors, who then pass those costs on, could make SEP and SIMPLE plans less attractive.

In the end, that could make it harder for small employers to offer retirement savings plans to employees, thinks Campbell.

Instant Insights /

Former EBSA chief says DOL proposal would crush small businesses

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