More On Legal & Compliancefrom The Advisor's Professional Library
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- Nothing but the Best Execution Along with the many other fiduciary obligations owed by RIAs, firms owe a duty to seek best execution of clients transactions. If they fail to do, RIAs violate Section 206 of the Investment Advisers Act.
Retirement planning officials take note: The Obama administration is ramping up enforcement efforts to combat the large number of retirement plans that it says are not compliant with retirement planning rules and regulations.
The Department of Labor has stated that 77% of 401(k) plans are noncompliant “in some form,” said John Carl, president of the Retirement Learning Center, which is sponsored by Columbia Management, the investment manager owned by Ameriprise Financial, at the SPARK Institute’s national conference in Washington on Tuesday.
While 2009 was a bad year for the economy, Carl said, it wasn’t so bad for DOL — it managed to add 997 employees that year — with 70% of those employees added to its enforcement division. The department’s Employee Benefits Security Administration (EBSA), for instance, saw a 28% budget increase in 2009, and EBSA added 29 enforcement personnel.
Carl also said that at the end of 2010, the Internal Revenue Service’s employer plan division disclosed its list of “plan sponsor audit targets” — U.S. companies owned by foreign entities; 403(b) plans; and small business owners.
For the retirement planning industry, “the stakes are higher than they ever were,” Carl said. “Lots of enforcement folks are running around kicking the tires.”
While the current administration is focused on enforcement initiatives, like previous administrations, it’s also pushing an agenda to address how unprepared most workers are for retirement.
Carl listed some statistics that demonstrate why the administration is worried:
- 54% of workers report less than $25,000 in total savings and investments; 27% have less than $1,000;
- Half of U.S. workers do not have access to employer-based retirement plans;
- Only 54% of small businesses (those with fewer than 100 employees) offer a retirement plan;
- Plan participation rate is 75% for those with access to a plan;
- The average account balance of the typical retiring DC plan participant is $144,000.
To combat its retirement-planning concerns, the administration is pushing a pretty sizable agenda — including expanding the definition of who’s considered a fiduciary. Carl said that while there should be a “more level playing field so consumers know what they are getting when it comes to advice,” referring to the the Labor Department's regulation amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA), “I’m not sure it should be a Title 1 ERISA” fiduciary standard. The fiduciary standard “should be something [the retirement planning] industry can comply with without mass change.”
The administration’s retirement-planning agenda, according to Carl, includes:
- Auto IRA;
- Plan startup tax credit;
- Target date analysis;
- Plan fee transparency;
- Lifetime income options in DC plans;
- Investment advice proposal;
- Increased IRS and Labor Department enforcement and compliance assistance;
- Expanded definition of ERISA investment advice fiduciary;
- Social Security reform.