A pending rule from the Labor Department that would expand the
definition of “fiduciary” for financial advisers to retirement plans would
force a significant number of small businesses to eliminate their retirement
programs or curb benefits, according to a new study.
About 30% of small businesses polled indicated that they would be
at least “somewhat likely” to drop their plan under a more comprehensive
fiduciary-duty rule, fearing that they would have increased regulatory costs
and liability.
The study also showed that 49% would cut back on their employer
matches for plan contributions and 47% would increase the fees charged to plan
participants.
Critics questioned the
assumptions made in the study, saying that it misrepresented the potential DOL
rule.
The findings were based on a survey of 607 executives at
businesses with up to 500 employees, which was conducted between November and
January. The study was conducted by Greenwald & Associates and co-sponsored
by the U.S. Hispanic Chamber of Commerce and Davis & Harman, a consulting
firm that represents a coalition of financial services organizations.
A spokesman for Davis & Harman declined to identify the
members of the coalition.
“The DOL expansion of fiduciary duty will only impede the ability
of small firms to offer their employees retirement plan accounts, thus
hindering American workers from saving for a reliable future,” Javier
Palomarez, president and chief executive of the Hispanic Chamber, said in a
statement.
Backers of the study have expressed opposition to the pending DOL
rule since it was first proposed in 2010 as a way to help protect workers from
conflicted advice as they manage their own direct-contribution retirement
plans.
It was withdrawn amid fierce protest from the financial industry,
which argued it would raise regulatory costs for brokers and curtail their
ability to service small retirement accounts. Opponents worry that the rule
will prohibit commissions and revenue-sharing between brokers and mutual fund
companies. The DOL has stated several times that commissions will be allowed
under the re-proposed rule.
The DOL is expected to re-propose the rule later this year.
A supporter of the DOL's work on the fiduciary duty issue said
that the study is meaningless because it's based on an inaccurate description
of what the DOL rule likely would do.
The survey was based on the assumption that the DOL would prohibit
plan providers and brokers from assisting employers in selecting and monitoring
funds placed in a retirement plan. It assumed that employers would have two
options — hire an independent expert for investment guidance or make the
selections themselves and increase their fiduciary liability.
“It's based on a lie,” said Barbara Roper, director of investor
protection at the Consumer Federation of America. “The question that they asked
is patently false. It grossly mischaracterizes the DOL rule proposal. No wonder
people said, 'This will be horrible.'”
Ms. Roper said that Wall Street is desperate to stop the DOL rule.
“As the DOL inches closer to getting their rule out, [the
financial industry is] pulling out all the stops to try and make sure the rule
re-proposal never emerges,” she said.
Another group also attacked the study.
“The results in the survey released today are inconsistent with
the findings of AARP'sthorough research of employers'
attitudes, which found widespread support for advice that meets a
fiduciary standard,” Cristina Martin Frivida, AARP director of financial
security and consumer affairs, said in a statement. “Our own survey interviewed
3,010 plan sponsors — roughly five times as many businesses as the research
released today — across many industries.”
But a major Wall Street trade association praised the survey.
“This study provides yet another example of the harm that can be
done to American investors and small businesses if the DOL moves forward with
its proposal,” Kenneth Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, said in a
statement. “While the DOL's actions are well-intended, the reality is that the
outcome of its proposal will likely do more harm than good at a time when
Americans cannot afford to lose a single dime of their future savings.”
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