The proposed redefinition of fiduciary by regulators could unintentionally push small employers out of the 401(k) market, according to a survey by Greenwald & Associates.
The Greenwald survey polled 607 sponsors and decision-makers in businesses with up to 500 employees. About 30 percent said the new definition of fiduciary would make them "at least somewhat likely" to eliminate current retirement plans.
The Department of Labor has proposed expanding the definition of fiduciary to include the financial institutions that advise sponsors on plan implementation. Currently, advisors can help direct a program without being considered a fiduciary and being beholden to the obligations and liabilities under that distinction.
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Current regulations prohibit fiduciaries from guiding investment choices because of transaction rules. If advisors to plans were considered fiduciaries, they would be prohibited from advising on plan design. That would mean employers would have to assume the responsibilities of plan design internally, or hire a third-party administrator to do so.
That would place high demands and higher costs on the small business hoping to provide retirement plans.
Almost 50 percent of the businesses polled that already have a plan say the new definition was "at least somewhat likely" to result in lower matching contributions, fewer investment options and higher fees for enrollees.
Perhaps most noticeably, the Greenwald survey noted high levels of satisfaction with current advisory relationships; 80 percent rated their current advisor as "very good or excellent" in selecting investments; more than 90 percent are "somewhat satisfied" with investment options.
Expanding the role of fiduciary to plan advisors is meant to extend protections to enrollees. The Greenwald Survey suggests the high level of satisfaction with current advisor relationships, combined with the cost of developing internal advisory capabilities or paying for a costly third-party administrator, could mean the DOL's new rule would have the opposite affect of what it intends: to help the enrollee save for retirement.
The DOL has expressed a willingness to reconsider. According to a report by ThinkAdvisor, Labor Secretary Thomas Perez told a Senate Appropriations Committee in April that the redefinition has been "slowed at my direction significantly because we wanted to take a step back to listen and learn from everyone."
The DOL's proposed redraft could be released as soon as August. Thereafter, it would be subjected to a period of comment and further revision before actually taking affect.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
