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Chamber: Fiduciary Rule Would ‘Lock Out’ Small Businesses

In its current form, the Labor Department’s fiduciary reproposal would “lock out” American small businesses from retirement plans, a new report says.

The paper notes that small business owners, through SEP and SIMPLE-type IRA plans, provide roughly $472 billion in retirement savings for more than 9 million U.S. households, and that the Labor Department’s new regulations “…would impose significant new compliance costs and legal liabilities on advisors to SEP and SIMPLE IRAs” — costs that the paper says will be passed on to these small business plans and employees.

The report was published by the U.S. Chamber of Commerce and authored by Brad Campbell, Counsel at Drinker Biddle & Reath LLP, and formerly the Assistant Secretary for Employee Benefits Security at the DOL. It outlines a number of concerns with the DOL’s proposal, including:

• Even providing a small business with marketing materials containing sample investment lineups for SEP IRAs or SIMPLE IRAs could constitute investment advice, as could providing an individual account holder with certain educational materials that reference the specific investment funds that are available.

• It could make it hard for advisors to recommend SEP and SIMPLE IRA investments that use certain proprietary investment products.

• It might require many advisors and their related financial institutions would have to change how their products and services are structured and how the retirement plans and IRA accounts are charged fees.

• It would very likely increase the costs associated with SEP IRAs and SIMPLE IRAs.

• It would make it more difficult for retirement savers to receive meaningful assistance, such as choosing appropriate asset allocations, within their accounts.

The paper takes issue with the proposal’s “carve out” for large plans (and the large plan advisors who serve them), those with 100 or more participants, or $100 million or more in plan assets. “The advisor to that large plan does not have to be a fiduciary, while an advisor to a small plan does. Because an advisor to a small plan is not carved out of the rule, the advisor who is trying to market retirement saving vehicles to a small plan is considered to be providing investment advice and must determine how to comply with the rule,” Campbell writes. “It does not make sense that small business plans should have to absorb costs that large plans do not simply because of regulatory fiat.”

Acknowledging that the DOL may intend this as “extra protection” for small plans, the paper notes that it really represents “extra cost.”

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