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| > Investing > Fiduciary Focus |
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| The 'Anti-Participant Rule' (Part 3) |
| by
W. Scott Simon
| 11-06-08 |
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Advisors should know that it's quite possible the Department of Labor's proposed rule §2550.404a-5 (what I refer to as the "anti-participant rule") to require "disclosure" of certain costs and fees associated with qualified retirement plans such as 401(k) plans will never see the light of day.
Some special-interest groups insist that the proposed implementation of the rule on Jan. 1 is not administratively feasible and urge the start date to be put off until Jan. 1, 2010. That impetus, coupled with a change of presidents (whether McCain or Obama) and probable heavier majorities of Democrats in both houses of Congress, could mean that the "anti-participant rule" will end up being the rule that never was; if perchance that is the case, I say good riddance.
Some of the special-interest groups involved in what I termed, in last month's column, the "charade" of the Department of Labor's 408(b)(2) cost-disclosure project would be more than glad to see the demise of the "anti-participant rule" if that should come to pass. These groups just don't want any comprehensive disclosure of costs in retirement plans. But as an Aesop's fable warns, be careful what you wish for. In the new Congress that will convene in January, the groups may have a difficult time resisting implementation of H.R. 3185, which really does require a truly comprehensive disclosure of costs in retirement plans.
When groups (or human beings for that matter) behave in a way that seems to conflict with their self-interest, in many cases it's because their true motives are obscured. In a previous column, I noted that some special interest groups--representing plan sponsors and, according to their Web sites, plan participants as well--are highly resistant to any meaningful cost disclosure. I asked: "Why would these interest groups ever want to make it at all difficult for their (plan sponsor) membership to be able to precisely identify the nature and amount of the costs associated with the 401(k) plans they offer to their employees so that they can prudently carry out the duties that basic ERISA law prescribes for them?"
In fact, making disclosure of costs easy and transparent would benefit the plan sponsor membership in these interest groups in the way noted in the preceding question as well as the plan participants--the center of the ERISA universe--that these groups say they also represent. And yet such groups have an interest in obfuscating the real costs of retirement plans--much to the detriment of plan participants--even though they claim to represent their interests. But why do these groups oppose comprehensive disclosure of costs in retirement plans unless they have something to hide? Why are they behaving in a way that seems to conflict with their self-interest (representing the interests of plan participants)? What are the motives that they're obscuring?
There are a number of reasons why such groups oppose comprehensive disclosure of costs in retirement plans. One involves the nature of their membership. At inception, these groups were composed primarily of plan sponsor employers. Over time, though, their membership ranks began to swell with mutual fund companies, insurance companies, and other financial-services firms. After all, these organizations not only are plan service providers but also plan sponsors. As a result, membership categories in the special interest groups multiplied from the usual suspects--human resource and finance functions--to functions that only large financial-services firms (not plan sponsors) fulfill: servicing, selling, and marketing retirement plans (to plan sponsors).
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| W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understanding is the definitive work on modern prudent fiduciary investing. Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals. For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. |
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