No Stone Unturned
The Department of Labor (DOL) will likely be looking at yet another area for expansion — or clarification — of the fiduciary role. This is in the area of managed accounts that are offered by service providers in 401(k) plans on either a default or an opt-in basis.
This is coming at the behest of a new study from the Government Accountability Office (GAO), which found that managed-account-land is not exactly a level playing field where fiduciary issues are concerned.
In brief, some types of managed account arrangements are operating under certain fiduciary requirements that others are not. As a result, GAO is recommending that DOL take a look at the fiduciary aspects of these arrangements. DOL has said it will do just that.
Not your thing? Well, those involved in the ongoing debate over expanding fiduciary standards will want to stay on top of this. It is another sign that the government is not letting the issue go. And those who provide managed account services (that is, investment companies, banks or insurance companies hired by plan sponsors) will definitely want to see where this goes, as changes may be afoot.
The researchers defined managed accounts as investment services in which providers make customized and personalized investment decisions for specific plan participants (employees who are in the plan). The providers charge an $8 to $100 fee on every $10,000 in a person’s account, according to the research.
GAO started poking into these accounts due their substantial growth in recent years. As market watchers know, growth often creates “concerns” that invite government analysis.
What kind of growth? Thirty-six percent of plan sponsors were offering managed accounts in 2012, up from about 25 percent in 2005, according to Plan Sponsor Council of America data cited by GAO. What’s more, the dollars held in managed accounts in 401(k) plans are big, totaling $100 billion at the end of 2012, according to GAO estimates.
GAO examined eight providers that it said represented approximately 95 percent of the industry in 2013. The findings show that these providers vary not only in services they offer but also in their, ahem, “reported fiduciary roles.”
One of the eight providers has “a different fiduciary role” than the other seven, GAO noted. Ultimately, that could provide “less liability protection for plan sponsors for the consequences of the provider’s choices,” it said.
That’s just one example of the uneven playing field. GAO also pointed a finger at DOL requirements involving managed accounts. The report said the fiduciary role of the service providers differs by whether the service arrangement is default or opt-in.
For default arrangements, DOL requires managed account providers to have a role that provides “certain levels of fiduciary protection for sponsors and assurances to participants of the provider’s qualifications.” For opt-in arrangements, similar explicit requirements do not exist. Another uneven playing field.
There’s a lot more to the report, touching on performance and benchmarking issues, need for DOL guidance on sponsor selection and oversight of managed account providers, and a list of GAO recommendations.
The point here is not only that GAO has brought more fiduciary issues to light but that DOL has agreed to “consider changes to regulations and guidance to address any issues.” For instance, Phyllis C. Borzi, assistant secretary for DOL’s Employee Benefits Security Administration, told GAO that the department will review existing guidance on the fiduciary status of managed account providers when they offer services on an opt-in basis “and consider whether additional guidance is needed…”
On the fiduciary frontier, then, the government is leaving no stone unturned. Industry professionals with vested interests, whether for or against expansion of fiduciary reach, will therefore need to do the same.