Should the DOL Further Regulate Derisking?

You know, I was just going to tweet about this article, but I realized I had too much to say on this to be limited to 140 characters (I always have too much to say to be limited to 140 characters, but I often cut myself off at that number anyway, or else I could never tweet). The article, “Proposed derisking regs called burdensome,” reports on the ERISA Advisory Council’s recommendations that the DOL regulate derisking and, in particular, declare the decision to do so a fiduciary act. I find it hard to accept the premise that regulating the derisking process is overly burdensome, and, particularly in the realm of pension plans, which are already highly regulated, perhaps it is time to retire the constant complaint that a regulatory initiative is burdensome and should not be pursued for that reason, except in circumstances where someone is actually willing to put forth the effort of explaining how the benefits of the regulatory activity are outweighed by specific, identifiable burdens and costs. Simply complaining about being subject to regulation, which is all that this particular, unspecified complaint boils down to, should not be enough to even warrant the serious consideration of serious people.

Derisking is unquestionably a serious activity being pursued by very serious and big money players, both on the vendor side and on the sponsor side. It likewise has clear and serious risks and benefits to numerous plan participants. It further has a momentum at this point that is approaching, if it hasn’t already exceeded, escape velocity. It is not overly burdensome, nor even unreasonable, to make sure that a reasonable regulatory framework for the activity, intended to ensure that participants come out fine in the process, is in place. And with regard to the question of whether it should be deemed a fiduciary activity, I defer to a very senior in-house lawyer with a major plan sponsor, who, in a talk I attended recently, asserted that fiduciary obligations already require, or if not should require, sponsors to fully consider the risks and benefits to the participants, and not just to the sponsor, before deciding to derisk.