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What Are EBSA's Plans for Regulating Brokerage Windows?

"Despite backing down in FAB 2012-02R, EBSA left the door ajar for possible future action.... The DOL's Semiannual Regulatory Agenda released in May of this year listed 'Standards for Brokerage Windows -- PreRule' as a priority. This agenda item was fulfilled with EBSA's August RFI. A reading of the 39 questions and their subparts does not give comfort to those who fear that EBSA is committed to restricting the use of brokerage windows, one way or another."

Senate Committee Report Indicates Ends Seem to Justify Means for Partisan DOL

"One of the key concerns of lawmakers and the retirement industry was whether the DOL had effectively communicated with the [SEC] as the conflicted advice regulations were being drafted.... The DOL not only refused to provide copies of what might have been its key communications with the SEC, but evidence obtained by the Committee from the SEC paints a picture of the DOL attempting to influence SEC not to fully cooperate with the DOL; not to provide these requested communication records. SEC staff had also pointed out numerous flaws in the regulations. The upshot is that the DOL's claim to have actively and substantively worked hand-in-hand with the SEC in creating these regulations turns out to be a fiction."

'March Madness' an Apt Name for Fiduciary Regs Battle

"It is significant that these anticipated regulations are now widely being referred to as the 'conflicted advice' regulations, a name that unquestionably is more charged than 'fiduciary definition' regulations. 'Politically charged' would not be putting it too strongly."

Is It Personnel Shortage, Intrusiveness, or Both, That's Behind New Form 5500-SUP?

"Some feel that a plan that provides data on its methodology for conducting coverage and nondiscrimination testing, its amending history, opinion or advisory letter information, etc., is making itself an all too convenient target for an IRS audit.... There are questions on Form 5500-SUP the answers to which will come from other providers, which the preparer may be in no position to authenticate or verify. Is the preparer potentially on the hook for the work of others over whom it truly had no control? Mandating that the preparer of the Form 5500-SUP be identified will result in a public record disclosure of the client/preparer relationship; something not required of preparers of Form 5500 itself. Is this really necessary?"

Some Roth Is Good; 'More' May Not Be

"[T]he conversion of pre-tax IRA or employer plan amounts to Roth status actually generates new tax revenue in the year the transaction occurs.... The Roth concept also figures heavily in proposals for future tax reforms.... The upside for taxpayers, and there certainly is one, is potential tax-free earnings in the future ... The downside for the federal budget is a significant reduction in future tax revenues."

Tax Court Ruling and IRS Rollover Guidance Don't Add Up

"The ability to execute IRA rollovers on a one-per-IRA basis has been described in detail in IRS Publication 590, Individual Retirement Arrangements (IRAs), for at least 20 years, that evidence readily available even now at the IRS's own web site. It is not conveyed in a mere statement, but in detailed examples provided to explain the sometimes-misunderstood rollover limitations.... [H]ow can this agency have spent uncounted taxpayer dollars over the life of this publication -- a publication that now runs to 114 pages -- for us to be told that its contents cannot be relied on by taxpayers? Are we not to take seriously the description on the cover that flatly says 'For use in preparing 2013 returns?'" [Bobrow v. Commissioner, T.C. Memo. 2014-21 (Jan. 28, 2014)]

Will Fiduciary Rule Survive Rising Tide of Lawsuits?

"The plaintiffs' arguments for an injunction [include] ... DOL infringing on the authority of other federal and state agencies, doing financial harm to investors, ... exposing financial advisors and their employers to litigation risk, and issuing a final rule with new conditions that allowed no opportunity for public review and comment. This last ... is thought to have a greater chance of swaying a court in favor of the plaintiffs.... Another charge that might have some possibility of 'sticking' is that DOL, despite their claims to the contrary, does not appear to have coordinated in a serious way with the [SEC]."

DOL Stretches Credibility and Precedent in New State Plans Guidance

"DOL takes the position that a state government could set up what would be called an 'open MEP,' a multiple employer plan for employers that have no common interest, purpose, or ownership. This is something that DOL has expressly and aggressively forbidden in such recent guidance as Advisory Opinion 2012-04A.... There are also legitimate questions to be asked about the alternative DOL-approved options for state-coordinated ERISA plans.... [Do] we want state governments deciding which service providers they will favor by including then in a state-approved retirement plan 'marketplace?' Do we want a state to sponsor a prototype plan document and offer it directly to employers, essentially competing with private sector firms that offer prototype documents and the services that go with them?"

EBSA's Fiduciary Solution: Many Ifs, Ands and Buts

"EBSA's proposed regulations make clear that compensation that may vary depending on the investments chosen ... can continue to be a part of the adviser or advising firm's compensation structure. But -- and it's an important 'but' -- the price for this freedom in compensation arrangements is the Best Interest Contract, or BIC ... 'Best interest' may be in the eye of the beholder. How much emphasis should be given to the lowest possible fees? Are higher fees justified by facts and circumstances, such as a more expensive fund whose manager has a track record for outperforming others? Would advice that looks questionable today be considered acceptable in the historical context of the time and options available when it was given?"

Does Retirement Saving Cost, or Pay?

"The annual 'tax cost' estimated by CRS for home mortgage interest deductions is four times the estimated cost in lost revenue as a result of IRA deductions and contributions to employers' retirement plans. Furthermore, citizens who reduce their taxable income via the home mortgage interest deduction do not pay this tax benefit back to the U.S. Treasury at some future time. Contrast this with deductible IRA contributions and pre-tax amounts deferred into 401(k) plans which are eventually taxed when a retiree withdraws them for financial support in retirement. Contrary to the way these retirement benefits are often characterized, they are not a permanent 'cost' to the federal tax revenue stream."