SEC vs. DOL

No, I’m not talking about the Southeastern Conference (SEC) vs. all Da Other Leagues (DOL) in college football—although that would be timely as well. I’m talking about the Securities and Exchange Commission (SEC) vs. the Department of Labor (DOL). These groups have recently been rumored to be at odds on a couple of items.

The first is around the definition of a fiduciary, or conflict of advice. See? They can’t even agree on what to call it. Both parties are currently reviewing this and while many voices are saying that they are working together, it sure does not feel like this is reality. At the end of October, the House passed HR2374, which basically says that the DOL would have to wait to publish their regulations until 60 days after the SEC issues their revised definition of a fiduciary. This is one example of people worrying that they are both moving along on their own, and that they will issues regulations that are materially different—thus creating much confusion on what is or is not allowed.

The second issue has to do with Qualified Default Investment Alternative (QDIA), which was established by the Pension Protection Act in 2006. The DOL has already established QDIA rules and they have quickly become popular with plan sponsors given the fiduciary protections and diverse construction.

The SEC has been reviewing custom QDIAs and they seem to be of the opinion that individual plan participants are the clients and thus would need to receive confirmation and provide sign off on any changes. This approach could put a strain on QDIAs or at least add some questions about all QDIA’s as most individual participants wouldn’t understand the requested changes—and as a result, may not provide consent needed to make an underlying change. This limits any QDIA managers from making changes they feel are best for the performance of the investment option.  Again, while this review seems to be limited to custom QDIA’s, the scrutiny could create questions for the more mainstream QDIAs.

We will just have to wait and see what type of collaboration is actually happening. Who knows—maybe they are working together to create something better than they individually could produce.

 

Affiliation Disclosures

Insurance products and plan administrative services are provided by Principal Life Insurance Company.  Securities are offered through Princor Financial Services Corporation, 1-800-547-7754, member SIPC and/or independent broker dealers.  Securities sold by a Princor® Registered Representative are offered through Princor.  Princor and Principal Life are members of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

© 2013 Principal Financial Services, Inc.

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