Council Considers Lifetime Plan Participation Options

By Ray Harmon • August 25, 2014 • 0 Comments

The DOL’s ERISA Advisory Council wrapped up a three-day series of public meetings Aug. 21 with a focus on lifetime plan participation. The Council’s final session honed in on whether and how communications and specific plan design features may be used to enhance participants’ decisionmaking. 

First, the Council heard from Joe Canary, director of the Employee Benefits Security Administration’s Office of Regulations and Interpretations. On the matter of communications, Canary declined to delve too deeply into the distinction between investment advice and education at termination of employment due to the DOL’s ongoing work on its definition of fiduciary (a.k.a. “conflict of interest”) rule. However, he did reference the Government Accountability Office’s report recommending that DOL work with the Treasury on improving communications about distribution options for DC plan participants in simple language. That report was cited throughout the remainder of the session by other witnesses and Council members, raising the prospect that a model document to educate plan sponsors and participants on retaining assets within the system may be included in the Council’s final recommendations. 

Regarding plan design features that might serve to encourage terminated participants to keep their balances in the plan, Canary indicated that providing loans as an incentive would not fall under the prohibited transaction rules because a former employee is not a party-in-interest. In other words, loans for separating employees would not trigger any red flags and could be a reasonable means of incentivizing asset retention.

Mark Fortier of State Street Global Advisors and Steve Saxon of Groom Law Group proffered a lofty, as-yet-undeveloped technological infrastructure project that they said could facilitate an easier transition from one employer plan to the next as participants change jobs. Under this scenario, plan sponsors would be able to access participant account information from a prior employer’s plan via an online central retirement data repository, and then direct assets from those prior plans into their new plan. Referred to by Saxon as “auto-portability,” both Saxon and Fortier acknowledged that such a concept would likely face opposition from IRA providers. 

Speaking on behalf of the Pension Rights Center, Drexel University’s Norman Stein provided the Council with a lengthy list of suggestions on how DOL could provide guidance on educating participants about distribution options without triggering fiduciary liability. Among those was a recommendation to “reverse [the Department’s] position that giving advice on whether to leave money in [the] plan or to transfer it to an individual retirement account is investment advice” — a position that, at least on the surface, would appear to run counter to  the Center’s own historical support of the DOL’s efforts to broaden the applicability of fiduciary liability, as well as Stein’s own testimony on behalf of the PRC in 2011.  

The Council also discussed plan design features, such as deemed IRAs, and new regulations to simplify plan-to-plan transfer forms and 404(a) disclosure documents, as well as the potential for guidance encouraging or requiring disclosures at participant withdrawals, not just at the regular intervals required by law. 

The Council’s Aug. 19 meeting focused on outsourced plan providers; click here for a report on that meeting. 

Ray Harmon, Esq. is ASPPA's Government Affairs Counsel.