From the December-January 2011 issue of Treasury & Risk magazine

Making More Fiduciaries

The Department of Labor is making some in the retirement plan services industry uneasy by proposing to consider more people as fiduciaries if they provide advice on employee benefit plans. Organizations that represent plan sponsors worry the change could have a chilling effect on service providers doing such routine tasks as supplying companies with information on investment choices. Under the Labor proposal released in October, the definition of a fiduciary would no longer be limited to those who buy or sell securities for plans, but would extend to anyone who exercises any control with respect to plans, as well as anyone who provides appraisals for employee stock ownership plans (ESOPs).

Some are concerned the proposal goes too far.

"We feel like there are some things that need to be clarified," says Kathryn Ricard, senior vice president for retirement policy at the ERISA Industry Committee. "We would encourage the department to include a safe harbor for certain people who might be swept in to fiduciary status," Ricard says, such as call center and HR department employees.

The American Benefits Council plans to comment along similar lines. "We are concerned that the rule, as proposed, may sweep too broadly and inhibit the flow of basic information on investment options to plan sponsors and plan participants," says Jan Jacobson, senior counsel for retirement policy at the Council.

Broker-dealers, who sometimes manage 401(k)s for smaller employers, are another group that's not used to the fiduciary designation and are likely to oppose the change, says Brian Graff, CEO of the American Society of Pension Professionals & Actuaries.

Some ESOP appraisers have already commented on what is considered the most surprising change, extending fiduciary status to appraisers.

"ESOPs are already costly and complex," wrote Peter Wilhelm of Wilhelm & Associates, a tax firm in Falls Church, Va., that also offers retirement planning and other financial services. "Fiduciary status is not the answer unless your intent is to destroy small ESOPs."

Some experts, however, say that aside from stock appraisers, most employee benefit plan providers anticipated an update of some sort to the 35-year-old ERISA. Though some providers may charge more to cover fiduciary liability insurance, in general the changes are a plus for plan sponsors, which have been bearing all the fiduciary responsibility themselves says R. Bradford Huss, a director at law firm Trucker Huss.

"There's now going to be a shared responsibility," Huss says, "which generally should be beneficial for plan sponsors."

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