Department of Labor's ERISA Advisory Council Issues Soft-Dollars Report Washington, DC, December 15, 1997 - The Department of Labor's ERISA Advisory Council Working Group on Soft Dollars and Commission Recapture has made public its final report. The Advisory Council is a statutorily mandated group of employee benefit plan professionals, including representatives from the financial services, private plan sponsor, and governmental plan communities. Council reports are in the form of recommendations to the Secretary of Labor. The primary objective of this Council Working Group was to evaluate current soft dollar regulations and industry practices to determine if employee benefit plan sponsors and other fiduciaries were being provided sufficient disclosure in order to properly protect plan assets. Based on oral and written testimony received during 1997 and described in the report, the Council made the following recommendations: Recommendations to the Department of Labor - Modify Form 5500 requiring plan sponsors to list all fees greater than $5,000 paid with directed brokerage.
- Add a question to Form 5500 requiring plan sponsors to certify that they are complying with ERISA Technical Release 86-1 in using directed brokerage programs.
Recommendations to the Securities and Exchange Commission - Tighten Section 28(e) definition of "research."
- Prepare a specific list of brokerage and research services that may be purchased with soft dollars.
- Require investment managers to provide to each client a description of their soft dollar policies and to disclose all trades for that client involving soft dollars and the benefits that investment managers receive from those soft dollars.
- Require disclosure of external research provided to investment managers on the Form ADV.
Recommendations Involving Plan Sponsor Guidance
The Council also recommended that further efforts be made to educate plan sponsors to assist them in understanding legal requirements, industry practices, and identifying improper conduct with regard to soft dollar and directed brokerage programs. The report lists ten specific guideline principles for plan sponsors. Minority Positions
In addition to the recommendations above, the following two minority positions were included in the final report: - Repeal Section 28(e) for employee benefit plans, thereby eliminating the safe harbor for research purposes.
- Eliminate the use of soft dollars for employee benefit plans, thus requiring brokerage firms to "unbundle" their services and investment managers to pay separately for execution and research with hard dollars.
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