The industry has blasted that reasoning, however.
“For the first time, the Department [of Labor] is proposing to create a ‘legal list’ that substitutes its judgment for that of the plan fiduciary, IRA owner or plan participant,” said the Securities Industry and Financial Markets Association in a comment letter.
“We question whether the Department has the legal authority to specify what retirement accounts can invest in,” Sifma added, and “given the impartial conduct standard required by the [BICE], there should be no limit on the types of assets covered.”
The approved assets are heavily regulated and relatively secure, said Frederick Reish, a partner at Drinker Biddle & Reath LLP in Los Angeles, who heads the firm’s ERISA team.
“It appears that the Department of Labor is concerned that the average retiree may not be able to independently evaluate those excluded investments,” Reish said in an e-mail.
The DOL is expected to amend its plan in response to feedback. The department is taking a final round of comments until September 24.
Observers expect the final rule to be unveiled in the first half of next year. The DOL has proposed an effective date eight months after the rule is published in the Federal Register.
Until then, industry interests are praying for changes to the BICE.
The Investment Program Association, which represents direct-participation programs, wants the DOL to drop the idea of an approved list altogether, or add DPPs to the list.
Likewise, the Managed Funds Association, which represents hedge funds, wants the BICE to include privately offered funds. Many hedge funds sell to small retirement plans (which would be covered under the rule) and to individuals through commissioned placement agents.