At a recent TRAU Practice Management Institute (TPMI) program at the University of Pennsylvania, experienced plan advisors were asked whether their plan sponsors clients were concerned or even cared about the DOL’s pending conflict of interest rule. While a few answered affirmatively, the general feeling in the room was that that the advisor sold DC plan sponsor community is not nearly as focused on the proposed rule as advisors and providers are.
So how would the DOL’s rule practically affect plan sponsors and their employees? Almost all advisors representing the plan will have to act as a fiduciary. There has been very little debate on whether there will be any little wiggle room on this issue. Advisors acting as fiduciaries carry liability, but that only goes as far as their assets or insurance will cover. Perhaps most importantly, these fiduciary advisors have to be paid under a level comp arrangement, which eliminates a lot of potential conflict.
The biggest potential impact of the DOL rule for plan sponsors will be on the continued ability of an advisor or record keeper to provide education without acting as a fiduciary. But assuming most advisors will have to act as plan co-fiduciaries, restrictions on education may impact micro plans most — and, according to a recent Cogent report, 81% of plan advisors are already providing one-on-one advice.
The real issue is what kind of help advisors will be able to give to terminated employees. Though experienced plan advisors might be more prepared to act as a fiduciary on IRA rollovers, the problem is that, under the current proposal, plan advisors will not be able to charge participants more on their IRA rollover than they charge the plan.
So what impact will all this have on the employer? Advisors restricted on providing education or helping terminated employees could affect outcomes and the financial wellness of departing employees. But today most employers are more focused on fees, funds, fiduciary liability and increased administrative work on their DC plans than on outcomes.
With so much national press about the proposed rule, and even President Obama commenting on it, perhaps its biggest impact on plan sponsors is to raise awareness. The message is that DC plans are a mainstream issue — important not just to employees and to employers but to the health of the nation as well. So for that, I guess we can thank the DOL.
