I enjoy watching a good spaghetti-western, which normally includes an un-even “dust-up” somewhere in the middle. In these shows the under-represented side normally wins! The under-represented is what motivates me to enter the conversation by continuing to ask the question – Who owns the Participant Data within a 401k Plan? I ask that question now based on recent articles – one co-authored by Tim Rouse Executive Director, SPARK Institute, and Mike Hadley, a Partner at Davis & Harman – The Retirement Privacy Dilemma – Data is critical to the proper administration of retirement plans. But who owns it?; and one penned by Fred Barstein, Founder & CEO of The Retirement Advisor University – Data Is the New Oil—How Do We Avoid an Oil Spill? I see thought provoking articles by industry leaders and I am curious what Retirement Plan Advisors might be thinking on the issue of Data Privacy.
Both articles offer interesting viewpoints from the perspective of high-level observations. But the increasingly important role of “The Retirement Plan Advisor” is vastly different from the observations and questions asked in the aforementioned articles. The Advisors have a dog-in-this hunt and they should be represented in the data-based discussions.
As mentioned in the articles “… the DOL has never squarely addressed the question of data as a plan asset.” Certainly, a fair and accurate assessment. But does it really matter? If we blindly feel that more regulation (additional, new, or yet to be conceived) is the answer – we as an industry are doomed.
The Retirement Privacy Dilemma – includes 7 Questions that could trigger unintended consequences. Here they are, followed by what Advisors just might be thinking…
- Data is not like any other plan “asset” that exists today. Unlike a stock, bond, mutual fund shares, or even the right to bring legal claims, plan data can be copied an unlimited number of times. If it is a plan asset, is the copy of the plan data a plan asset? If so, is a copy of the copy of plan data, a plan asset?
Advisors might think: Data is data. And data consists of unique properties (as do stocks, bonds, and the other assets referenced). However, that data alone does not automatically ascribe or assign a value to anything – yet it can still fall on the asset-side of the ledger.
Concerning the copying of data [and possibly] creating a new asset for each copy made?
I understand this to be a valid question for attorneys and regulators (comprising a dream-debate for the courtroom), however, an Advisor viewing this question might posit – If the copy was made with permission or in the interest of helping participants to achieve better outcomes – then where is the harm? Where is the damage if an Advisor works with a pre-approved copy consisting of data which helps them to be more efficient? (This assumes that the Advisor will also follow the rules of the firm, supervisors, and compliance.)
- If data is a plan asset, it would need to be held as an asset of the trust, meaning the trustee would always need to be in control of the data. It cannot be in the possession of anyone but the plan trustee.
Advisors may think: This question is a puzzling – since assets held in-trust can have trifurcated interests – the possession (custody), current use and future use – which can each remain with separate and distinct parties. Separating the custody of a trust asset from the use of or the future benefit of the asset is a function performed everyday – with other assets. Cannot that same division of interest be readily appropriate for plan data?
- Anyone who has any “discretion” over data would be a fiduciary. So, if a participant were to provide their data to a financial advisor, that advisor would become a fiduciary.
An astute Advisor might want to ask – Really? If a Retirement Plan Committee observes plan participants investing in a manner that does not appear prudent…and the Retirement Committee feels participants would benefit by personally speaking to an investment professional – then, there seems to be inconsistency in how a plan fiduciary should be discharging their duties.
It seems a bit overreaching that a plan participant giving an advisor personal or plan-related data creates a fiduciary relationship. (As an outlandish application of the above logic, it appears the U.S Postal Service becomes a fiduciary by virtue of having custody and the data of a plan participant. One could also surmise the IRS to be a plan fiduciary to all qualified plans!)
- If data is a plan asset in a 401(k), the same would be true for IRA data, which is similarly subject to the prohibited transaction rules in the Internal Revenue Code. If an IRA owner were to allow an advisor or account aggregator such Mint access to data on their IRA to provide other financial solutions, that would generate an expensive excise tax owed to the IRS.
A seasoned Retirement Plan Advisor understands that there has been little harmony among the Department of Labor and the SEC on the oversight of IRAs. The experienced Advisor will let this question and future interpretations percolate for a few years before becoming overly concerned with the topic. (Similar to the “New Fiduciary Rule” that has been bandied about over the last 15 plus years.)
- In a 401(k) or similar defined contribution plan, all plan assets must be allocated to the accounts of the participants or used to pay for plan expenses. (Think the assets generated in a forfeiture account or ERISA budget account.) How would this data be valued and put it in an account?
Advisors are not likely to be losing any sleep over this. This again presents a case of: Split Interests. Possessing data is of zero value – unless an Advisor can legally “use” that data. Again, there are established processes and rules for the appropriate use of such data. We must keep in mind there are laws, regulations, and self-regulatory oversight organizations who would adjudicate “what is legal, or what is not.” (Know your Customer, Best Interest, etc.) If we still believe that adding a new law or regulation will retard the actions of the unscrupulous Black-hats, we are living in a fantasy world.
- Like other plan assets, would plan data would need to be “distributed” to participants upon the plan termination?
Advisors must be scratching their heads in unison when pondering what new rules around data-storage-scrubbing might be required in their future. (Respectfully, distributing participant data to a participant seems a bit like something from The Department of Redundancy.)
- Participant quarterly benefit statements, and the schedule of assets on the Form 5500, would need to show the value of the data as a plan asset. How would a plan even begin to determine the value for reporting purposes?
Again, an Advisor knows – there is no value in the data unless it is mined or used. Zero. It is only when the data is being used (or after it has been stolen) that a value could be determined.
The above 7 questions are cutting-edge, forward-thinking, and real issues for many. I applaud the conversation. But although there will be fallout affecting Advisors – much of it right on feels like ‘noise’ for Advisors. An overwhelming number of Retirement Plan Advisors choose to spend their time and efforts on what they know or feel will help the efforts of plan sponsors and plan participants.
Many of the 7 questions above are great case studies for attorneys, plan service providers, cyber-sleuths (both Black and White Hats); but while the industry and regulators grapple with these concepts, I trust that Retirement Plan Advisors will keep busting-their-backs to make certain Plan Participants can live a wonderful and deserving retirement.
In the article Data Is the New Oil it was mentioned that “…everything starts, and stops, with data.” With that I disagree. After a few years in this industry, one truly understands that – Everything usually starts, and ends, with a really good Retirement Plan Advisor.
