My focus in this post is on two fairly recent releases from the Feds, one of which came from the GAO and the other of which came from the DOL. Here's a summary of what came out and the parts of the releases that I think are important.
- The DOL release probably is on your radar. It is a Request for Information, in which the DOL is asking for input on potential regulations governing brokerage windows. This is the first step in the process of proposing regulations. While the Release is styled as a fact-finding exercise, everyone expects guidance from the DOL in this area, as the DOL has already expressed its positions on fiduciaries' responsibilities related to brokerage windows (in Field Assistance Bulletin 2012-02 and 2012-02R, where the "R" stands for "revised," which is what the DOL had to do in response to the firestorm of negative opinion that it triggered by suggesting that fiduciaries have a duty with respect to brokerage windows). The Request for Information contains 39 separate requests related mostly to what constitutes a brokerage window, who uses them, how they are selected and monitored by fiduciaries, what they cost and how relevant information about them is communicated to participants.
- The GAO release may not be on your radar. In June, it released a report to the Committee on Education and the Workforce, House of Representatives, entitled 401(k) Plans -- Improvements Can Be Made to Better Protect Participants in Managed Accounts. The report looks at the major providers of such accounts in 401(k) Plans and proposes a variety of regulatory approaches that could help participants.
The link between these two releases may not be apparent, except that the GAO specifically linked them, in its report, because managed accounts are often available through brokerage windows. And, the report contains the DOL's written response to the GAO's call for regulations, including in connection with the brokerage window project. The most significant GAO points in this regard are its requests for guidance to plan sponsors related to selecting and overseeing managed account providers and its request for a requirement that plan sponsors have to provide for more than one choice of managed account provider.
I am "reading between the lines" in the area of overlap between the DOL and GAO releases. They're both focusing on how fiduciaries pick and monitor providers in these areas. I understand the logic--we've always understood that there is a requirement to act prudently when selecting a plan investment vehicle or a vendor responsible for administration. What concerns me is that, in many situations, the questions "who should provide the brokerage window?" or "who is providing non-default managed accounts?" isn't asked very clearly because the answer is "our third party administrator is in that business and they included it in their proposal."
The activity in D.C. that's discussed here should lead fiduciaries to show that they considered the alternatives and specifically selected the TPA for these additional roles. Actual Regulations may be a long way off, but the direction is clear, and plaintiffs' lawyers can read between the lines just as well as we can. Fiduciaries who anticipate where they could be criticized (in a lawsuit or by the DOL) can act in ways that make that criticism less likely. And, following this advice wouldn't add significantly to the work the fiduciaries are doing anyway, if they are selecting and monitoring providers properly.