ARA Presses for PEP Clarity, Revisit of ‘Regular Basis’ Test in DOL’s Investment Advice Proposal

The Labor Department’s new fiduciary proposal gets it right on rollovers, but needs clarity on its application to Pooled Employer Plans (PEPs) and could stand a rethink on at least one of the elements of the five-part test, according to a comment letter filed by the American Retirement Association.

 

In its August 6 comment letter on the proposed class exemption released June 29 by the DOL, the ARA offers input on three specific areas in the proposal: 
 

 

Emphasizing that it is an association representing ERISA plan fiduciaries, the ARA supports the application of an ERISA fiduciary standard to advice provided to plan participants regarding rollovers, which, under the proposed rule, would replace the DOL’s previous position as described in the Deseret advisory opinion. 

 

“We thank the Department for providing clarity on the ability of a 401(k) plan advisor to work with plan participants on rollover transactions under a fiduciary standard,” the ARA states, noting that this issue is particularly germane for plan sponsors as they encounter participants’ needs for sources of reliable information when considering rollovers. 

 

As an added benefit, by emphasizing the importance of an advisor on rollovers, the ARA comments that the exemption may serve to point participants to the current plan advisor, who would not only be familiar with the terms and features of the plan, but generally would be better positioned to advise on the benefits of keeping retirement account balances in the plan, the letter further explains.  

 

 

Here, the ARA requests clarification that, in the context of PEPs, Pooled Plan Providers (PPPs) should not be excluded from exemptive relief under the proposal even though PPPs are named fiduciaries as required by statute and that PPPs should not be considered ERISA fiduciaries solely by reason of marketing the PEP and its investment platform to employers who are independent of the PPP. 

 

As described in the ARA’s July 20 comment letter on the DOL’s Request for Information regarding prohibited transactions involving PEPs under the SECURE Act and other multiple employer plans, the organization notes that it is interested in working with the department to make PEPs a “viable and meaningful retirement savings vehicle.”

Under the proposed exemption, it appears that advisors of a broker dealer that is a PPP and that forms a PEP would not be able to take advantage of the exemption for rollovers because the broker dealer of the PPP is also the named fiduciary of the PEP.  

 

The ARA suggests that this issue could be addressed by clarifying that in the PEP context, the PPP (or an affiliate of the PPP) is considered to have been selected to provide advice by an independent fiduciary if the advice services are covered by the terms of the PPP’s (or affiliate’s) agreement with the participating employers—and thus avoid being excluded from relief under the exemption.

 

The ARA further addresses an issue involving offering an investment menu, whereby, in a PEP, the PPP would generally have a role in the selection of the menu of investment options to make available to the plan participants, which would be approved by the participating employers as a function of their selection of the particular PEP. 

 

While the 2016 final regulation on fiduciary investment advice included a specific carve-out for the marketing or making available of a platform of investment options, the ARA explains that there is no such guidance under the reinstated five-part test. “We believe it would be appropriate for the Department to clarify how the concept of fiduciary investment advice applies in this context, taking into account that the participating employers are to be treated under the statute as having a fiduciary role for certain purposes,” the letter states. The objective would be to make clear that the PPP would not be considered to be providing fiduciary investment advice under the five-part test solely by reason of marketing the PEP and its associated investment platform to employers who are independent of the PPP, the ARA explains.  

 

 

Finally, the ARA urges the department to consider—in a separate proceeding—revisiting the “regular basis” prong of the five-part test for fiduciary investment advice.

 

“In particular, the ARA’s long-standing position has been that the ‘regular basis’ element of the test, requiring that advice be part of an ongoing relationship, is too narrow, for the reasons described in the Department’s 2016 notice adopting the final regulation,” the letter advises. As such, the ARA shares the concern that the regular basis element fails to draw appropriate distinctions between the sorts of advice relationships that should be treated as fiduciary in nature and those that should not.