Not only did the Labor Department sanction an arrangement that, for the first time, allowed an investment management firm to offer advice on its own funds and be paid for that advice—even if that advice impacted the compensation received—it made the effort to make that decision public; IMHO, signaling to the industry that the model sanctioned in the Advisory Opinion ) could serve as a blueprint for other investment firms (and advisers) to follow in those footsteps. Indeed, it was issued not as a prohibited transaction exemption in a specific situation (though that was what had been requested), but as an advisory opinion on the program’s structure.
Sure enough, in the months that followed, it seemed as though just about every large DC provider put together some kind of program that, like the SunAmerica model, applied some kind of independent asset-allocation computer modeling to their DC platform investment offerings. In no time at all, millions of participants1 who had been looking for a bit of substantive guidance on how to invest their 401(k) balances had an answer—and, it should be noted, generally at a price that they found attractive (it was often included at no additional cost). In fact, after the SunAmerica opinion took hold, it always seemed to me that the urgency around finding a way to provide “advice” to participants was greatly diminished.
That wasn’t the end of the issue, of course—even when then-Assistant Secretary of Labor Ann Combs published the SunAmerica opinion for the world to see, she noted the Labor Department’s continued support for advice legislation long-championed by Congressman John Boehner (R-Ohio), legislation that, in large part, found its way into the (still) controversial fiduciary adviser provisions of the Pension Protection Act (PPA) (see “DoL Lowers Another Advice Barrier”).Still, I was surprised when Assistant Secretary of Labor Phyllis Borzi invoked the name of the SunAmerica Opinion at a recent conference; particularly when she said she had heard reports that firms had been inappropriately taking advantage of its provisions (see “EBSA Sets Out Carrot, Stick Agenda”). Now, Secretary Borzi didn’t elaborate on any specific firms, but considering that the original opinion contained a number of specific conditions, it is entirely possible that, eight years later, one or more firms have managed to “gloss over” some key elements either in designing or in explaining their program(s). It is even possible, of course, that some have flagrantly disregarded those provisions. Those situations should be dealt with promptly and, IMHO, visibly.
I was also struck by the repeated invocation of the SunAmerica opinion last week in a hearing by the House Ways and Means Committee (see “House Lawmakers Hear DB Funding, Advice Bill Pleas”). Most of the witnesses expressed concerns that legislation recently proposed—the 401(k) Fair Disclosure and Pension Security Act of 2009 (HR 2989)—would, in its attempt to eliminate the fiduciary adviser provisions of the Pension Protection Act (PPA), also, at least effectively, and perhaps unintentionally, lead to the elimination of many advice programs in place prior to the PPA’s passage, including those predicated on the SunAmerica structure. I say “effectively” because the proposed law would basically impose the stricter PPA computer model auditing requirements on any computer-modeled advice—and the concern is that the cost and complexity of doing so will lead firms to disband those programs and/or employers to cease offering them.
It is not clear to me at this point that that was the intent of the proposed legislation, though it may well be the result. No one is in favor of conflicted advice (though we may disagree on what falls within that definition)—but, however complicated we may try to make it, most participants (and plan sponsors) don’t care whether you call it “advice” or “education.”
They just want some help.
—Nevin E. Adams, JD
(1) The Profit Sharing/401(k) Council of America reports that 20 million participants are offered advice through Sun America arrangements.
You can check out the full testimony from the House Ways and Means hearing HERE
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