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Is an Activist Department of Labor Good for the 401(k) Industry?

Perhaps some things are best left to the SEC.

It’s always amusing to hear retirement plan advisors say that things would be better if the government would just stay out of their business. Maybe they should not have chosen a profession named after Internal Revenue Code sections that depend on tax breaks.

But the question is whether an activist DOL is good for the system that was epitomized by their bulletin and “guidance” effectively banning cryptocurrency in defined contribution plans. ForUsAll, a fintech record-keeper, sued the DOL, who would not back off, even though, according to ForUsAll’s CEO, Jeff Schulte, “The DOL does not have the authority to pick winners and losers in asset classes.”

The 5th Circuit vacated the Obama administration’s DOL fiduciary rule in 2018 because it had overstepped its authority ending what was a five-year exercise. The industry spent hundreds of millions preparing and the Trump administration decided not to defend the rule.

With weighty issues like ESG funds, IRA rollovers, cybersecurity, data privacy and retirement income looming as well as boundaries for providers and advisors selling ancillary services to participants, it’s essential that the DC industry understand the role of the DOL to make long-term business decisions.

Arguably, the DOL should engender discussion and commentary on important rule-making initiatives and then issue well-thought-out guidance using the best interest standard they are trying to impose on IRA rollovers, devoid of politics. Their goal should be transparency by implementing a prudent, documented process and then enforce their rules via policies dictated by the administration, Congress and the courts.

Along with transparency so everyone can make better, more informed decisions, the DOL’s goals should include increasing coverage while helping people better prepare for retirement.

When the attorney Jerome Schlichter started suing DC plans over a decade ago, he noted the DOL should have been more active in eliminating conflicts and abuses. That void has resulted in an estimated $400 million in fees for his firm and almost 200 lawsuits in the past two years alone.

It took former U.S. Rep. George Miller’s (D-Calif.) prodding after the Great Recession in 2008–09 to get the DOL to promulgate fee disclosure rules in 2012, all of which have been infinitely less effective than proactive RPAs who helped clients lower record-keeper fees and get better service from benchmarking and RFPs, as well as quarterly reviews of investments.

After over 500 plan sponsor training programs with almost 12,000 plans, I met a very few who have read their 408(b)(2) disclosure form and none that have understood it, which is telling and sad, though not surprising.

And while 2020-02 PTE requiring advisors to act as fiduciaries when recommending an IRA rollover may benefit participants, I thought the DOL had jurisdiction over ERISA plans, not IRAs.

As providers try to hide costs through “due diligence” or platform fees paid by DCIOs that subsidize plan costs, as fiduciary advisors try to sell proprietary investments and ancillary services for which they get paid, and as cybersecurity and data privacy issues run rampant, the DOL will play a critical role in increasing coverage and retirement security as well as improving transparency and promulgating plan sponsor education and training.

But effectively banning digital assets used by many institutional investors and a great percentage of the public, and trying to regulate IRA rollovers dominated by wealth advisors and RIAs probably best left to the SEC, which better understands that market, may not be in the best interest of the DC industry. Especially with lawsuits running rampant and the DC market changing rapidly.

Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.

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