Pension & Benefits Daily™ covers all major legislative, regulatory, legal, and industry developments in the area of employee benefits every business day, focusing on actions by Congress,...
By Sean Forbes
May 4 — Many are bound to disagree with the Department of Labor's re-proposed fiduciary regulations on broker-dealer advisers, but they will be given plenty of time to comment on them, said Phyllis C. Borzi, assistant secretary for the DOL's Employee Benefits Security Administration.
The 75-day countdown for the initial period of written comments began when the re-proposal (RIN 1210-AB32) was published on April 14. Comments are due July 6.
The DOL's re-proposed rule would require brokers to work under a fiduciary duty when working with retirement investors, meaning they would have to act in the clients' best interest. Presently, they are held to a “suitability” standard, meaning they can sell products that generally fit an investor's needs and tolerance for risk.
Although most advisers operate under a best interests standard, some don't, even though most consumers think that the best interest standard is the legal standard, Borzi said.
“And so it seems like a fairly simple straightforward thing to require everybody as a basic legal obligation to put the interests of their clients ahead of their own,” she said during a session of the International Foundation of Employee Benefits Plans Washington Legislative Update, where she provided an overview of EBSA activities.
After the initial comment period ends on July 6, the DOL will soon thereafter hold public hearings. After the original proposal, the department held two days of public hearings. This time around, “I assume there will be several days of public hearings,” Borzi said. After the hearings, the DOL will publish the transcript, and then re-open for more comments, she said.
“So this is a very long and very open public process, and we want everybody to comment,” she said.
The DOL also is working on modernizing the Form 5500s, with a particular focus on bringing up to date the financial statements; pension benefits statement to reflect lifetime income illustrations; and health plan enforcement, Borzi said.
Regarding the Form 5500s, the DOL is interested in refining the “Other” category under Assets on Schedule H, Financial Information, to capture information on hard to value assets, she said.
Much of the interest in refining the financial information is because of requests from policy makers, who want to know what kinds of assets are hard to value, how many plans have hard to value assets, what percentage of their portfolio is such assets, and what are the categories of such assets, Borzi said.
The project will result in “better, more targeted recording,” so that people will know much they're paying in fees, what kinds of fees, and what services they are getting for those fees, she said.
The DOL is also working on upgrading its ERISA Filing Acceptance System 2 (EFAST-2) reporting system to the EFAST-3 system.
The agency is planning to get draft forms and proposed regulations on the Form 5500 update published by late summer, Borzi said.
Borzi said the DOL also is working toward releasing its lifetime income illustration pension benefits statement proposed rule this summer.
In May 2013, the DOL issued an advance notice of proposed rulemaking (RIN 1210-AB20) that would have required that pension benefit statements for defined contribution plans include lifetime income illustrations, and invited comments on its proposal.
The DOL has been homing in on health-care plans covered under the Employee Retirement Income Security Act for compliance, where it has found problems with both disclosures to plan sponsors and participants, she said.
In the department's enforcement program, called the Health Benefits Security Project, the DOL found that common problems showed up not only in small plans but also in the very largest plans, and included unpaid or improperly processed benefits claims, improper denial of benefits, hidden or excessive service provider fees, and “massive—underscore massive noncompliance with the department's” claims benefits procedures, she said.
To get “the biggest bang for the buck,” the department decided to focus its enforcement tactic on the largest plans and the biggest cases, where there were systematic and systemic violations across institutions, Borzi said.
Among the issues that cropped up often is that fees could be “disguised as medical provider charges,” where the service provider would mark up its management fees—a term that is typically poorly defined—on top of per capita fees, and then “pocket” the mark up, she said.
To prevent such fraud, plans should be demand a full accounting of the management fees and the fee schedule, she said.
The ERISA Advisory Council has also looked at this area of lack of transparency in the context of pharmacy benefit managers, “an area that we know where there is a distinct and detrimental lack of transparency,” Borzi said.
Poor disclosures also affect participants, she said. Some plans have passed on the insurance contract with their group health carriers as if they were the summary plan descriptions. But insurance contracts aren't SPDs, and moreover they fail ERISA's requirement that SPDs must be understood by the reasonable plan participant.
But the “biggest problem” regarding participant disclosure is with estimations of benefits, because service providers have failed to explain explicitly what isn't covered under the plan, a requirement that has been in place since ERISA was enacted in 1974, she said.
Lastly, the mental healthy parity requirements under the Mental Health Parity and Addiction Equity Act do provide “a lot of gray area,” but one thing is clearly prohibited, she said: “Applying a pre-authorization to every single mental health or substance service, while none, or only a handful to medical/surgical treatments. There is no person for whom English is a first language who would think that is in compliance. And yet we find these kinds of problems all the time.”
To contact the reporter on this story: Sean Forbes in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Sue Doyle at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)