401(k) Specialist Issue 2 - 2019 - 14

What obvious mistakes are made by plan sponsors,
their investment committees and 401(k)
advisors that drive you absolutely crazy? "
The question is meant to get a rise from
Fred Reish, but the soft-spoken, even-keeled
ERISA attorney with legal powerhouse
Drinker Biddle is unfazed, as anyone who's
ever met him or seen him speak can attest.
It's appreciated in the current craziness, as
all things fiduciary once again ramp up. The
SEC's Reg BI is a central industry issue, with
hints of (yet another) try from the DOL making
noise in the background.
" My biggest frustration with plan
sponsors is that they truly don't understand
what it means to be a fiduciary, " he answers
somewhat surprisingly given all that's happened.
" They don't understand in committee
meetings that their duty of loyalty
is to employees, not to the company. I can
understand why, but it makes everybody's
job harder. "
Those that don't understand better ramp
up quick, as " there's a lot going on " with
fiduciary regs overall.
" Reg BI will probably be issued as a
final regulation by the SEC in June or July
[see page 20 for more on the regulation and its
scope]. It won't be applicable immediately,
though. You'll have a delayed implementation
date anywhere from six to 12 months.
During that time, I think the DOL will
issue a prohibitive transaction that coordinates,
or is based on, the SEC's guidance
and Reg BI. "
As most advisors know, the DOL
currently has a " nonenforcement policy "
in place, which says if an advisor is a
fiduciary to a plan yet receives variable
compensation-based on the investments
recommended-they won't enforce it as a
prohibited transaction if the advisor satisfies
the impartial conduct standard.
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ISSUE 2 2019 | 401kSpecialist.com
" If their compensation isn't level, they're
traditionally subject to the prohibited transaction
rules. But I believe the DOL wants
to say that as long as the advice is of good
quality and loyal to the participant, and the
compensation is no more than a reasonable
amount, that variable compensation could
therefore be received, " Reish says.
So, despite the probable harmonization
between Reg BI and the DOL, is it nonetheless
possible the latter will once again try
with a rule of their own?
" I don't know, " Reish bluntly answers. " I
do think though that there are several issues
the DOL is concerned about. The most notable
is the recommendations of rollovers. "
We hadn't heard as much rollover hysteria
since the DOL rule's demise, but Reish's
view is that the department wants recommendations
of rollovers to be deemed fiduciary
acts, and therefore subject to the best
interest standard of care, impartial conduct
standards, loyalty to the investor, prudence
and so on.
" Going a step beyond your question,
it's not just a legal reason they want it, "
he says, taking the conversation in a more
philosophical direction. " Approximately
10,000 baby boomers are retiring every
day and will be for years to come. They've
" My biggest
frustration with
plan sponsors is
that they truly
don't understand
what it means to
be a fiduciary, " he
answers somewhat
surprisingly
given all that's
happened. " They
don't understand
in committee
meetings that their
duty of loyalty is to
employees, not to
the company. "
been rolling over about $300 billion [from
retirement plans] each year. It's now at $400
billion and in a few years will be at $500
billion. They have to figure out how to live
on the money generated by those IRAs for
20 or 30 years. "
Noting that his own mother recently
passed away at age 101, 30 years of retirement
from 65 to 95 is not outrageous, and
he mentions the widely cited statistic that
there's close to a 50 percent probability that
one individual of a couple now aged 65 will
live to 90.
So, what should happen to make that
money last for this uncertain life expectancy
with equally uncertain markets, Reish
rhetorically asks?
" Good investment advice is one
thing. Reasonable expenses on those
investments is another. Not having the
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401(k) Specialist Issue 2 - 2019

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