Spurred by the recent cryptocurrency “compliance assistance release,” nearly a dozen industry trade groups—including the U.S. Chamber of Commerce—have expressed concern about “a trend at EBSA away from rulemaking based on a robust notice and comment process.”
While the cryptocurrency CAR may have inspired the April 12 letter, the signatories—take pains to clarify, “at this time,” that they “express no view on the appropriateness of retirement plan investments in cryptocurrency.”
Rather, the letter expresses concern with “…what we perceive to be a trend at EBSA away from rulemaking based on a robust notice and comment process, including review by the Office of Information and Regulatory Affairs (“OIRA”).” They go on to acknowledge that the “line between helpful sub-regulatory guidance and indirect rulemaking is not a clear one”—but go on to “…respectfully suggest that recent sub-regulatory guidance has been more in the nature of rulemaking in need of notice and comment and OIRA review, such as with respect to recent best practices guidance.”
The letter contends that:
- Brokerage window investments are not designated investment alternatives.
- The Department’s existing supplemental guidance under 404a-5—Field Assistance Bulletin (“FAB”) 2012-02R—“makes clear that, while there may be a fiduciary duty to evaluate the brokerage window provider, there does not exist a fiduciary duty to monitor or evaluate the underlying investments that plan participants make in the window.”
The group contends that “most windows are not set up to even monitor or block investments,” but goes on to note (as other commentators have) that the issued guidance would effectively “modify the law retroactively, such that a past failure to monitor brokerage window investments in a newly announced specified manner will be investigated as a likely violation of ERISA”—a change that they say is “not only inappropriate and impracticable, but at a minimum would have to be done prospectively with notice and comment and OIRA review.”
The letter also expressed concern about:
- the Labor Department’s admonition that “extreme care” be used in adding cryptocurrency, explaining that is “not the legal standard applicable to fiduciaries under ERISA…”; and
- the Department issuing guidance on which investments are inherently appropriate or inappropriate.
It also asks that “the cryptocurrency guidance be withdrawn, pending a robust notice and comment period. At a minimum, it is critical that the announcement of a new fiduciary standard with respect to brokerage windows be withdrawn.”
The letter goes on to comment on what the authors state is “a growth in the use of best practices guidance and investigation and litigation-generated settlements with single parties in lieu of rulemaking, such as with respect to missing participants, cybersecurity matters, and fiduciary obligations with respect to employer securities.”
They comment that these “pronouncements” of the Labor Department’s positions “are not a substitute for regulatory guidance.” Rather, they comment that guidance on best practices and “single-party settlements reached through investigation and litigation in areas in which the Department has not undertaken formal rulemaking … can be viewed as setting forth the Department’s enforcement expectations without engaging in notice and comment on what the law is and without OIRA review.”
They go on to state that “the industry” has recognized the Department’s recent approach to investigating plan fiduciaries on topics for which it has not issued formal guidance as “regulation by enforcement.” They specifically cite the issue of locating missing participants, and—albeit a different issue—the proposed prohibited transaction exemption application rules.
NOTE: The American Retirement Association (ARA) is directly engaged in a conversation with DOL on how to practically deal with their guidance particularly as to the implications with respect to self-directed brokerage accounts.
 Signatories are the American Bankers Association, American Benefits Council, American Council of Life Insurers, The Defined Contribution Alternatives Association, The ERISA Industry Committee, Insured Retirement Institute, Investment Company Institute, Securities Industry and Financial Markets Association, The Small Business Council of America, The SPARK Institute and the United States Chamber of Commerce.
 The authors acknowledge their appreciation for “the openness of EBSA to have informal listening sessions with stakeholders on a broad range of issues,” explaining that “it is in the context of this openness that we write to you about CAR 2022-01 and ask respectfully that this release be withdrawn and that the Department instead develop guidance in this area through notice-and-comment rulemaking.”
 That may be technically accurate, but anecdotally, we know that many are or at least can be.
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