Executive “Order”

Those who had been waiting anxiously (or nervously) for that final wave of regulations from the Department of Labor will have (get?) to wait a bit longer, it appears.

Just hours after the inauguration of President Barack Obama, White House Chief of Staff Rahm Emanuel issued a memorandum ordering a temporary moratorium on any regulations set to be published in the Federal Register “until it has been reviewed and approved by a department or agency head appointed or designated by the President after noon on January 20, 2009.” (see White House Executive Order Snares Fee Disclosure, Advice Regs ).

That “snared” pending DoL proposed directives requiring service providers to disclose “fees, compensation, and conflicts of interest” to fiduciaries of 401(k) and other benefit plans (see “EBSA Puts Out Provider Fee Disclosure Proposal” ), as well as a fee disclosure regulation for participant-directed individual account plans, which Labor had published in proposed form last July (see “EBSA Finishes Regulatory Package with Participant Disclosure Proposal”). Not directly impacted perhaps, but a near certainty to be influenced by the shift in control will be the recent finalization of rules regarding participant advice under the Pension Protection Act (see DoL Finalizes Rules on Investment Advice).

Now, it’s not unusual for an incoming administration to issue this kind of directive, and, frankly, it’s common sense. After all, if it’s waited until the final weeks of a presidential term to be put into law, why wouldn’t an incoming administration want at least a chance to make sure it fits with their agenda (more ominously, it’s not as though outgoing administrations haven’t been known to create problems/mischief for the next set via the implementation of last-minute regulations).

Having said that, there are some important issues and policies behind these rules – fee disclosure and participant advice – and a period of extended uncertainty likely won’t serve anyone’s interests. On the other hand, it’s not like these issues – and potential solutions – won’t be a focus for the new Congress and Administration. It is, however, unlikely, IMHO, that they will present the same solutions contemplated in the still nascent regulations.

“Safe” to Say?

I think it’s safe to say that we can expect a push for even more fee disclosure – and not just to plan sponsors. Plan sponsors certainly need more information about the fees and expenses associated with their programs, and they could use some help in getting those answers more readily than they do at present. On the other hand, the proposed regulations were hardly a panacea for the problem. IMHO, they were at best a practical response to the realities of the marketplace as DoL understood them at the time. Anyone who thought those were going to provide a completely consistent, transparent, and readily readable presentation of that information simply wasn’t paying attention. But it was a start.

Ditto participant fee disclosure. Setting aside for a moment the issue of whether participants want or will use that much information, IMHO, the regulations proposed would, in all likelihood, probably serve to obfuscate, not clarify the situation – and they would do so at an enormous cost to the system (and to the participants who pay for much of that system). Should participants be able to figure out what their 401(k) accounts cost? Absolutely. Would the proposed solution accomplish that? Probably not - but don’t blame the regulators. Trying to unravel the web of offsets, breakpoints, and revenue-sharing challenges the best of us. Let’s face it: It is a system designed to make it easy to get paid, not to make it easy to understand what is being paid. Still, however onerous the proposed solution was, the clear sense at the time from those in the party now in power was that it didn’t go far enough. Let’s hope the medicine isn’t worse than the disease.

As for participant advice – well, IMHO, it’s something of a miracle that the fiduciary adviser concept made it into the Pension Protection Act in the first place, much less into law. But it did, and Congress – including some members who now so adamantly oppose the concept – had a hand in its passage. You can hardly fault Labor for doing what the PPA mandated it to do (craft regulations regarding how that process was to take place and be overseen) – but you have to understand that there are powerful forces in Congress now who want very much to nip that “mistake” in the bud. I would be surprised if they were not successful in doing so, one way or the other.

Elections matter, after all – and matter they should – though sometimes they matter in unanticipated ways. Ironically, it is easier now to anticipate how the solutions of the new Administration will manifest themselves than it is to estimate when they will emerge, or when their accommodation will be required.

But change is coming, make no mistake – change that will be different, and perhaps “harsher,” than the change previously anticipated. Change that, even then, IMHO, might serve to make things better. Or not.

We’ll see.

- Nevin E. Adams, JD

Lest one think that my trepidations are limited to the future proposals, see:

IMHO: Irreconcilable Differences

IMHO: No One (Else) To Blame

IMHO: “Know” Way