Health benefits take political center stage as executive and legislative candidates argue about the success or failure of Obamacare, but retirement issues are also critical to a wide range of employers.

In the next two years, a series of new regulations will change the way employers and their advisers will administer and communicate retirement benefits. Many of the new regulations will help protect retirement benefits from mishandling and improper reporting, but plan administrators are likely to see them as headaches.

First in line from the Department of Labor (DOL) is a change in fiduciary standards, says Jan Jacobson, senior counsel, retirement policy at the American Benefits Counsel (ABC). "The rules are likely to have a big impact on plan sponsors as the fiduciary standards will change to reveal new ways of interpreting conflict of interest," she says. The American Benefits Council is a trade group representing primarily Fortune 500 companies that sponsor or administer health and retirement benefits.

Fiduciary rules were originally introduced with the passage of the Employee Retirement Income Security Act of 1975, which called for plan sponsors to behave prudently in designing, investing and communicating retirement benefits. However, the standard allowed employers to make decisions based on efficiency and quality of investments, and educate employees about their options under both defined benefit and defined contribution plans. Employers were also allowed to encourage employee savings and provide incentives.

In April 2017, the Labor Department will release printed rules with the new definitions; but as the rulemaking process proceeds, benefits industry advocates are trying to influence the proposed changes. In August, Lynn Dudley, ABC senior vice president, global retirement and compensation policy, testified about damages that could result from the proposed changes. "The Department of Labor's redefinition of who assumes 'fiduciary' responsibilities under ERISA seems at odds with employer efforts to facilitate employee engagement," Dudley said.

"Plan sponsors are trying to enhance employee education and encourage participant engagement in their benefit programs using internal and external resources," she explained. "Employers are concerned that the new conflict of interest and fiduciary definition rules will generate uncertainty, cost and potential liability. Without changes, this would result in employers pulling back on the tools they currently offer and could hurt the very people the Department is trying to protect."

Dudley testified that the proposed rules will impact employee assistance and benefits education programs, including call centers, on-site benefits briefings, the availability of human resources personnel to answer some basic questions asked by employees, investment education and external investment advisory programs.

"Plan sponsors are concerned that the standard for fiduciary advice is too easy to trigger," she said. "The proposed generic information permitted as 'education' in the proposal would not be directly responsive or provide sufficient context to be useful to plan participants in many cases."

Jacobson also notes that the DOL rules are likely to affect employer retirement plan reporting and communication by 2019. The DOL Form 5500, the required federal retirement plan reporting form, now comprises more than 300 boxes for information. Under proposed regulations, the form would grow to more than 3,000 bits of data, which would have to be filed electronically, a challenge for employers and their consultants that prepare the documents.

It also would be required to contain comparative information about plan benefits and distributions according to various income and demographics, a platform for potential discrimination complaints.

Employee benefit statement construction also would be affected by the rules. Preparing employee benefit statements is a big part of the ancillary human resources services that many agents and brokers provide. These new rules would also affect agents, brokers and employee benefit consultants who provide benefits education programs and help design targeted communications for employee groups.The rules come at a time when industry surveys indicate that plan participants have finally regained confidence in defined contribution plans and investment options and have started to rebuild plan balances after the 2008 recession. Plan participants are also more interested in using investment planning tools and targeted investments, which may be restricted by the new fiduciary rules.

A Fidelity Investments survey released in August indicates that average 401(k) balances increased about 2% from the first quarter to the second quarter of 2016, though they were still down 7% from the same period in 2015. But the Boston-based investment and retirement plan administrator also reported that more plan participants chose targeted investment funds-about 45% of customers-which may be more resistant to market fluctuations.

More than 400,000 customers also used Fidelity online investment education tools and 225,000 completed the company's interactive retirement analysis tools that help users create a retirement savings strategy. Plan participants that use these tools are less likely to overreact to market volatility and lose money in downturns, according to Doug Fisher, senior vice president of workplace investing.
"It can be tempting for investors to have a kneejerk reaction to market volatility, so it's encouraging that more people are tapping professional guidance to help keep their retirement savings and investing on track," he wrote in the survey analysis.

Under the new conflict of interest rules, it is not clear whether or not investment firms and plan administrators could continue to offer these services. However, some industry experts say the regulations will have a positive effect on employees and plan administrators-and eventually the agents, brokers and consultants who deliver services.

Chuck Epstein, publisher of mutualfundreform.com, a financial industry website, points to the regulations as a consumer breakthrough.
"The U.S. Department of Labor (DOL) implemented the first phase of its long-awaited regulation that investment advisers adhere to a fiduciary duty. This standard requires that brokers act in the best interest of their clients and disclose all material conflicts of interest. Broker-dealers operate under a suitability rule in which they are required to ensure that investments align with a client's needs, timeline and risk appetite," he says.

Conflicts of interest in the advisory business cost investors about $17 billion annually, he says, and possibly up to twice that amount, according to a White House study. "This $17 billion represents about 1% of all retirement savings," Epstein notes. "While the financial industry continues to oppose the new rule, informing uninformed investors about better-suited, often cheaper investments should create returns that go right to an investor's bottom line.

"The reason is that fees and expenses are the main variables that all investors can control all the time," he adds. "The other important variable is savings. So while lower fees and expenses directly benefit investors, the financial industry opposes the rules since it would impact their commission and sales-based business model. The new rule means financial reps have to disclose their motives for selling a specific product over another."

Epstein points out that the new regulation also makes two important points: Regulation is beneficial to markets and individuals, and what's good for investors often is opposed by the financial services industry.