March 1, 2011
For additional information:
Jason Hammersla

Council tells EBSA: fiduciary definitions are still too broad

WASHINGTON, DC — "We understand the desire of the Department to update and improve the regulatory definition of a fiduciary. However, we believe that the proposed regulations create too broad a definition," began Kent Mason, partner with Davis & Harman, in his testimony before the Department of Labor's Employee Benefits Security Administration (EBSA) today. Mason appeared on behalf of the American Benefits Council at the EBSA hearing regarding proposed regulations defining when a person is considered a fiduciary by reason of giving investment advice to a benefit plan or its participants or beneficiaries. Mason cautioned that "an overly broad definition would actually have a very adverse effect on retirement savings by raising costs and inhibiting investment education and guidance for plan participants."

Mason addressed a number of specific concerns raised by the Council. He noted that "an ERISA fiduciary relationship is a very serious relationship with the highest fiduciary standard under the law. In that context, fiduciary status should not be triggered by casual discussions but only by serious communications that reflect a mutual understanding that an adviser/advisee relationship exists. In our view, a fiduciary relationship should not be treated as existing in any case unless there is a mutual understanding that the recommendations or advice being provided in connection with a plan will play a significant role in the recipient's decision-making."

In considering who then should be designated as a plan's fiduciary, Mason answered, "Common practice is for a plan sponsor to form a committee of senior executives to oversee plan issues, including plan investment issues. It is certainly clear that such committee has fiduciary status. But under the proposed regulations, large numbers of middle-level employees who frame issues and make recommendations for senior employees to consider would also be fiduciaries. The effects of too many fiduciaries with no decision-making ability would be severely negative to the plan and the related administrative costs would skyrocket."

Mason also highlighted:

  • If a one-time recommendation can give rise to fiduciary status, it is essential to distinguish between fiduciary recommendations and the selling of investment products or services. The Council applauds the Department for including an exemption for persons acting as, or on behalf of, purchasers or sellers, however, it is critical that the scope of this exemption be expanded and clarified.

  • Coordination between Executive Agencies regarding regulatory projects on this subject is more than just good practice as reiterated by the President's recently issued Executive Order. In particular, the Council urges EBSA and the Securities and Exchange Commission to coordinate and articulate a single standard of conduct applicable to brokers and dealers in providing investment advice and for the Commodity Futures Trading Commission to bring its proposed standards for business conduct regarding swaps in alignment with those of the DOL.

The Council's comment letter to EBSA on this issue is available on the Council's web site. To arrange an interview with Council staff on retirement policy issues, please contact Jason Hammersla, Council director, communications, at 202-289-6700.

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The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.