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Employer groups, responding to the Labor Department's proposed investment advice regulations on May 5, 2010, said that the DOL should not attempt to regulate what constitutes "generally accepted investment theories."
In the proposed investment advice rules, which were issued in March 2010, the DOL made a request for public comment on the conditions applicable to investment advice arrangements that use computer models. Specifically, the DOL sought comments on whether final regulations should: require (or proscribe) the use of specified investment theories and practices; specify minimum standards (e.g., minimum number of years of experience) for historical data that is taken into account in determining a model's expectation for the future performance of asset classes and specific investment alternatives; or expressly designate the criteria that are appropriate and objective bases for asset allocation.
ASPPA: core fiduciary values should control
Craig Hoffman, General Counsel and Director of Regulatory Affairs at the American Society of Pension Professionals & Actuaries (ASPPA), applauded the DOL decision to omit the administrative class exemption that was part of the original release in 2009. "We believe the exemption would have exposed participants and beneficiaries to conflicted investment advice without sufficient protection from the potential effect of an advisor's conflicts of interest," Hoffman said, adding that the exemption was contrary to Congressional intent.
However, Hoffman said that ASPPA is concerned that the newly proposed rules seek input into what are "generally accepted investment theories." In doing so, Hoffman, said "the DOL is going down a path that may unnecessarily interject government regulators into the role of investment advisor by dictating the parameters of what is acceptable."
Rather than explicitly or implicitly endorsing a particular theory or methodology, ASPPA, the Council of Independent 401(k) Recordkeepers (CIKR) and the National Association of Independent Retirement Plan Advisors (NAIRPA) would instead like to encourage the DOL to continue to hold up a set of core fiduciary values. Those values would include the need for portfolio diversification, investing for the long term, the payment of only reasonable fees for investment services and the need to keep potential conflicts of interest with respect to the advice given to a minimum. "While particular investment strategies and products come and go, these core values remain the same and provide benchmarks against which all theories, styles and methodologies should be measured," Hoffman said.
PSCA: concept would be inconsistent with ERISA
In its comments, the Profit Sharing/401(k) Council of America (PSCA), along with the U.S. Chamber of Commerce and the ERISA Industry Committee (ERIC), agreed that the DOL should not regulate generally accepted investment theories. The concept that the Labor Department might prescribe specific parameters on what constitutes generally accepted investment theory is inconsistent with ERISA and with the DOL's longstanding positions on the operation of a retirement plan in compliance with ERISA's fiduciary requirements, the PSCA stated. ERISA ß408(g)(3)(B)(i) requires the computer model to use generally accepted investment theories, the PSCA noted, but the statute "wisely does not define this term."
Source: ASPPA news release, May 5, 2010; PSCA letter, May 5, 2010.
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