When the DOL fee disclosure rules 408b2 and 404a5 went into effect in the summer of 2012, many experts predicted an industry upheaval resulting in an onslaught of calls from plan participants upset about “hidden” fees and massive turnover of advisors and providers when plan sponsors realized how much they were paying.
The reality was that call centers waiting for participants to call were mostly quiet and the turnover of advisors and record keepers did not spike.
Both plan sponsors and participants had trouble understanding the fee disclosure documents sent by providers and, even if they did, there were more important issues to focus on. Nonetheless, the movement to more transparent fees was critical and continues to grow having a major impact on 401k and 403b plans spawning more lawsuits and press and perhaps even spawning the DOL fiduciary rule.
So while the DOL fiduciary rule has to have an effective date, which was June 9th, the ultimate effect of the rule whether it continues to be emasculated or not, remains to be seen. Though the Trump administration seems hellbent on repealing the fiduciary rule, there may be other more important issues that distract them just as President George W. Bush got distracted by the Iraqi War when it seemed likely that all retirement plans would be consolidated and changed under ERSA and the “three sisters.”
While fiduciary responsibilities of plan sponsors under ERISA seem complicated, there are two basic principles which, if followed, provide protection:
- The plan has to be managed for the sole benefit of the participants; and
- Fees have to be reasonable.
The DOL rule brings those concepts to advisors. Many advisors would not admit, or were not allowed to by their broker dealer, that they were acting as fiduciaries even though there were functioning as one. The DOL rule eliminates that confusion. Removing all conflicts may take a while.
The 401k and 403b industry is maturing entering early adulthood as companies and the industry deal with the massive societal shift of unfunded retirement liability from companies and government to individuals. When companies see how healthcare costs and salaries, productivity and morale of the organization (in other words, their P&L) is affected by their defined contribution plan, the conversation will change from what a fiduciary has to do to what a steward or leader should be doing.
Imagine a doctor (aka advisor) explaining to a parent (aka fiduciary) that their child (aka employee/participant) is sick and dying but that the doctor followed all the rules in performing their duties. Having rules is necessary but it is not the goal. It’s great that the industry has moved beyond whether plan advisors are or are not fiduciaries but when do plan sponsors start holding advisors and accountable for the health of the patient?
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