Providing generic information as to the availability and types of investment products should be excluded from the definition of fiduciary, according to Edmund Murphy, president of Empower Retirement.

Murphy was one of many to voice concerns over the education carve out to the Department of Labor at this week’s open public meeting over its proposed fiduciary rule.

But his role, and Empower’s in the workplace retirement plan market are unique in estimating how the DOL’s education carve out and other provisions might affect participant access to savings plans.

Thousands of investment options are available from Empower’s platform. Of the $450 billion in assets the company manages, only 10 percent come from proprietary funds, explained Murphy.

“We take four million phone calls a year and give information specifically directed to the person on the phone,” said Murphy.

And participants may also get targeted information if assets are over concentrated, or a participant’s savings rate is lower than par.

It’s that specific type of information the DOL needs to address as it refines the rule, said Murphy.

“We all want to end up in the same place,” said Murphy. How we get there matters.”

But Timothy Hauser, deputy assistant for program operations at DOL and head of the regulators’ panel this week, wondered if in all of those phone calls there was not some occasion for Empower’s representatives to cross the line from giving support to clients to advising them on how to invest their assets.

“I would think in the context of four million calls you will have someone cross the line,” said Hauser.

Murphy said he supposed that was possible, but emphasized “there is no incentive to recommend something that is not in the best interest of clients.”

“We are not in the business of giving investment advice,” underscored Murphy.

The DOL’s education carve out attempts to prohibit providers from steering participants into certain investments through education materials.

A consensus from the provider portion of the industry says it goes too far.

Murphy said offering common planning tools such as asset allocation models would trigger fiduciary status. He echoed other testimony throughout the week that suggested the DOL should allow sponsors to use modeling tools that include investment options already in the plan menu.

Murphy also aired Empower’s concerns over the seller’s carve out, which says that advisors to plans with fewer than 100 participants will be required to act as fiduciaries, while advisors and providers to larger plans will not.

That carve out needs to be extended to all plans, regardless of size, argued Murphy.

All plan sponsors are fiduciaries under ERISA, he reasoned. The DOL’s rule should take that into consideration in extending the seller’s carve out, which, as proposed, gives advisors to larger plans a break on the grounds that bigger sponsors have existing internal fiduciary protections.

He cited the 50 million Americans employed by small businesses that don’t have access to plans.

“We sell 3,000 plans in that space a year,” he said. Compensation tends to be commission based, because smaller sponsors don’t want to have to pay advisors out of company coffers.

“We’re often asked to play a support role with advisors to narrow selections. As it relates to small plans, we want to make sure we can support that process. We don’t have any skin in the game other than trying to help get the right lineup in place,” said Murphy.

Any rule the DOL finalizes must help keep advisors engaged in the small-business space if the existing retirement plan access gap is to be narrowed, argued Murphy.

The seller’s carve out was also the subject of wide-ranging criticisms this week, as DOL panelists focused much of the week’s questions to witnesses on the matter.

Bradford Campbell, the one-time head of the DOL’s Employee Benefits Security Administration who is now an ERISA attorney in private practice, testified on behalf of the U.S. Chamber of Commerce earlier in the week.

“Our members, especially small businesses, have been very clear: the rule wouldn’t help us, it would hurt us,” said Campbell.

“Unfortunately, the proposal’s regulatory burden and choice limitations fall hardest on those very small businesses that already have the most difficult time offering retirement plans,” he added.

As it is proposed, the seller’s carve out would make it infeasible for most advisors to serve the small sponsor marketplace, said Campbell, who cited the DOL’s own data showing the lack of access to advice and resulting investment mistakes cost retirement savers $114 billion in 2010.

Murphy’s testimony from Empower’s perspective backed Campbell’s suggestion that advisors will flee the small sponsor market if the seller’s carve out is not extended to all plans.

“These plans are sold, they are not bought,” said Murphy, suggesting advisors are critical in delivering plan access to small businesses.

Extending the seller’s carve out to all plans would be a significant concession by the DOL, as it would effectively say advisors will not have to be fiduciaries to any 401(k) or workplace retirement savings plans.

As one DOL representative wondered aloud when considering an extension of seller’s carve out in a question and answer session, “Wouldn’t that just get us back to where we started?”

Read more: DOL Fiduciary Rule

Instant Insights /

Empower head testifies to concerns over DOL fiduciary rule

More From HR Executive

Related Stories

Recommended For You