 |
| > Investing > Fiduciary Focus |
 |
| The 'Anti-Participant Rule' |
| by
W. Scott Simon
| 09-04-08 |
|
|
Continued from page
1.
Another wonderful byproduct of the "anti-participant rule" is that costs associated with retirement plans will otherwise remain unnecessarily high because of their obfuscation. The Department of Labor just doesn't seem to understand this. Buried in the 31-page manifesto issued by the Department of Labor in the July 23, 2008, Federal Register titled "Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans; Proposed Rule," is this passage:
"In developing.proposed regulation [408(b)(2)], the [Department of Labor] considered why the market alone does not provide transparent fee disclosure to participants comparable to that prescribed by this regulation .. The lack of transparent fee disclosure in this market suggests to the [Department of Labor] that individuals may underestimate the impact that fees and expenses can have on their account balances, and thus undervalue transparent fee disclosure. The [Department of Labor] believes that this causes individuals to make uninformed investment decisions that result in inferior outcomes to those that would result from making investment decisions based on full information .. If employees undervalue disclosure, plan sponsors might underprovide it. Sub-optimal levels of disclosure translate into inefficiencies in participants choices of investment products and services."
What's disturbing about this series of illogically sequenced sentences (as indicated, some were omitted to make this mish-mash less nonsensical) is that the initial question posed-- why the market alone does not provide transparent fee disclosure to participants--is never answered. The focus, instead, is on plan participants that "underestimate the impact that . expenses can have on their account balances," thereby causing them to "undervalue transparent fee disclosure," which in turn causes them to "make uninformed investment decisions that result in inferior outcomes."
The next-to-last sentence of this meandering passage is a real corker: "If employees undervalue disclosure, plan sponsors might underprovide it." The Department of Labor has it exactly backward here. Instead, it should read: Plan sponsors underprovide disclosure so naturally participants undervalue disclosure--or worse, they don't value it at all since they have no idea about the costs of plan investment options. Added to this, of course, should be the obvious notion that sponsors underprovide disclosure to participants because they are not provided with complete and cogent disclosure of costs by plan providers.
The only sentence in this passage that makes any sense is the last one: "Sub-optimal levels of disclosure translate into inefficiencies in participants' choices of investment products and services." Yeah, no kidding. But the Department of Labor merely scratches it head here and doesn't even attempt to answer either its initial question (why doesn't the market provide transparent fee disclosure to plan participants) or this one. In fact, the root answer to both is the same: plan service providers have no duty under ERISA to disclose to plan sponsors the costs associated with the investment options in retirement plans, despite the GAO's repeated urging that the Congress amend ERISA to fix the "disconnect" that I've described previously in this column. The Department of Labor could have done something to help correct that disconnect, but it punted and failed to do so.
|
|
1
|
2
|
3
|
4
 |
|
|
|
| W. Scott Simon is an expert on the Uniform Prudent Investor Act and the Restatement 3rd of Trusts (Prudent Investor Rule). He is the author of two books, one of which, The Prudent Investor Act: A Guide to Understanding is the definitive work on modern prudent fiduciary investing. Simon provides services as a consultant and expert witness on fiduciary issues in litigation and arbitrations. He is a member of the State Bar of California, a Certified Financial Planner, and an Accredited Investment Fiduciary Analyst. Simon's certification as an AIFA qualifies him to conduct independent fiduciary reviews for those concerned about their responsibilities investing the assets of endowments and foundations, ERISA retirement plans, private family trusts, public employee retirement plans as well as high net worth individuals. For more information about Simon, please visitPrudent Investor Advisors, or you can e-mail him at wssimon@prudentllc.com The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. |
|
|
|
|
|
 |
|
Manager's View Participants
|
|
|
|
|
|
|
Follow us on Twitter
