DOL primed to expand 401(k) oversight through Tibble v. Edison

Commentary: Here we go again. The Obama administration is geared up to leave a lasting impression upon employee benefit packages. Just weeks after the Affordable Care Act’s employer mandate to provide specific health care coverage or face penalties took effect, the administration is now in position to make its mark on employee retirement accounts.

The Department of Labor has put together a plan to impose new rules on the brokers who collectively manage trillions of dollars in U.S. retirement accounts. Its goal is to impose fiduciary responsibility upon retirement fund brokers, legally requiring them to act in the retirement client’s best interest. This is a higher standard of care than the current rules, under which they must only reasonably believe their recommendation is right for the customer.  

The DOL will submit its plan to the Office of Management and Business for final administrative review in the next few days. Wall Street lobbyists have already defeated this proposal twice, having forced it to be withdrawn for the first time in 2011, and again last August.

Also see: Edison case exposes deceptive practice of revenue sharing

However, this time the Obama administration has timed the review to correspond with the opening arguments in the Tibble v. Edison case, being heard before the Supreme Court on Tuesday, February 24, which could be a landmark ruling for the corporate retirement space. The Ninth Circuit Court of Appeals has already determined that Edison International violated ERISA by introducing high-expense ratio retail-class mutual funds rather than lower-cost institutional-class funds. The damage done to the employees was further compounded by Edison’s participation in a revenue sharing model  which required participants to pay over charges to compensate for the fees for vendors and middlemen, a portion of which was kicked back to Edison. 

The case is one of many filed in the battle to lower retirement savings costs, but it is the first to reach the Supreme Court. The timing is curious that the Tibble case has made it this far at the same time the Department of Labor is submitting its proposal to impose fiduciary responsibilities on brokers.

It is partially at the urging of Obama administration that the Supreme Court will rule whether an employer has a continued duty to monitor its employee’s retirement investments and to determine on an ongoing basis whether the plan is reasonable and in the best interests of its employees. Assuming the Justices do not dismiss the case, which is possible, it is likely they will rule in favor of the plaintiffs, thus giving a SCOTUS stamp of approval on Washington’s expanded influence and oversight over corporate retirement accounts.

Also see: Edison raises concerns about ERISA statute of limitation protections

The hope is that this case will serve as a wakeup call to plan sponsors as well as create momentum for the DOL’s plan to impose higher responsibilities on the brokers who sell to them. Most employers are clueless about revenue sharing and other costly industry practices and yet they are the ones responsible for taking care of their employees’ retirement well-being. It is the administration’s desire that the outcome of this case will spur fresh support for its plan to create a legal obligation for the brokers to provide better, ongoing assistance to plan sponsors.

Brian Menickella is a co-founder and managing partner of The Beacon Group of Companies, a broad-based financial services firm that offers companies and individuals advice on insurance, investing and employee benefits.

Securities offered through TFS Securities, Inc., Member FINRA/SIPC, a full service broker dealer, located at 437 Newman Springs Road Lincroft, NJ 07738 (732) 758-9300. Investment Advisory Services offered through TFS Advisory Services, a division of TFS Securities www.finra.org

For reprint and licensing requests for this article, click here.
Retirement benefits Retirement education
MORE FROM EMPLOYEE BENEFIT NEWS