Washington, DCThe Employee Benefits Security Administration is reportedly looking to make changes to a portion of the Employee Retirement Income Security Act (ERISA), according to The New York Times.
The news source reports that the Labor Department said recently that it will reconsider a proposed new regulation that would require investment professionals to take more responsibility for the advice they offer in 401(k) and other retirement plans.
The Department has reportedly been criticized by professionals in the financial services industry as well as lawmakers, according to the news provider.
"This extra time will enable us to strengthen the protections we already proposed and to do it in a way that is more straightforward and more clear," Phyllis Borzi, assistant secretary of the Employee Benefits Security Administration, told reporters in a recent conference call. "There was a lot of misinformation about what our rule did and intended to do."
The potential changes to ERISA involve the definition of a fiduciary, which is currently applicable when a financial professional meets the specifications of a five-part test, the news source said. One portion of this test specifies that the person must offer financial advice on a regular basis, meaning one-time hires would not fall under the fiduciary category.
Borzi, who testified before the House Committee on Education and the Workforce in July, said that such a test was not broad enough and could lead to potential issues.
"The narrowness of the existing regulation opened the door to serious problems, and changes in the market since the regulation was issued in 1975 have allowed these problems to proliferate and intensify," Borzi said in the testimony.
The major criticism thrown at the Labor Department over its initial proposal was that fiduciaries working under ERISA regulations faced more limitations and restrictions than others who were not, according to the news source.
A number of lawsuits have been filed related to ERISA regulations, particularly over the past few years amidst the struggling economy. Many of these lawsuits, including the recent case of Textron, Inc. employees, contend that companies misrepresented their financial situations, which they claim was a breach of the company's fiduciary duty.
According to the plaintiffs in the Textron lawsuit, the alleged misrepresentation of the company's financial health spurred employees to make imprudent investments in the Textron Stock Fund.
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