I was 5 years old when Star Wars came out and little did anyone know at the time what a phenomenon would be or that it would be the 4th episode in a six film saga. George Lucas is still backing up the Brinks truck as even my son has picked up a light saber for the first time. The morale of the story, an occurrence can be more than just a onetime thing; it might be part of a bigger picture.
When fee disclosure regulations were finally promulgated by the Department of Labor and were supposed to go into effect this July, many just saw it as part of a long time struggle for plan sponsors to finally get what they needed to get to manage their fiduciary duty, disclosure of all fees charged by their retirement plan providers. With a delay of its implementation to January 2012 and quite possible later and with what the DOL is also cooking, it is quite clear that fee disclosure is just part of a bigger picture for the DOL.
I really believe that the change in the definition of fiduciary by the DOL in the retirement plan marketplace will shake up the industry more than fee disclosure because the change will certainly force some brokers of the market or forced to partner with ERISA §3(38) fiduciaries. The new fiduciary regulations may be delayed as politicians from both sides of the political aisle have lodged their complaints (money from the financial industry always helps). The fact is that the fiduciary definition needed to be changed after a 35 year slumber. The current definition was developed when there was no 401(k) plans, or revenue sharing, or expensive 401(k) platforms that are “free”, or an alphabet soup of mutual fund class shares. So clearly a definition that was set when the bulk of retirement plans were pension plans and drivers were popping 8 track tapes in their car, needed to be changed. We will see what final shape that the new definition of fiduciary will take, but I still believe that brokers will be required to abide that standard or leave the business of retirement plan advising. The proposed fiduciary definition change will create a level playing field where all advice to plan sponsors on retirement plans will be product neutral and where the needs of the plan sponsors, participants, and beneficiaries come first.
Why are the Section 408(b)(2) regulations part of a bigger puzzle? If you read the regulations or a synopsis of the regulations, you will see that retirement plan providers will have to identify to the plan sponsor s whether the services they provide are fiduciary services or not. How will service providers know they are fiduciaries if the definition of fiduciary is in limbo? So clearly, that is connected with any efforts by the DOL to change the fiduciary definition and more than likely that the 408(b)(2) regulations will be further delayed until the DOL implements new fiduciary regulations.
408(b)(2) and the fiduciary definition are tied together. They are both about disclosure, defining roles, and eliminating conflicts of interests. They are perfect together.
408(b)(2) is just one small step in a long term saga by the DOL to start cleaning up the retirement plan industry, just like Star Wars (now known as Star Wars: Episode IV: A New Hope) was part of a long term saga.