Institute Testifies Before DoL's ERISA Advisory Council

Washington, DC, September 17, 1996 - On September 10, 1996, the Investment Company Institute testified before the Department of Labor's ERISA Advisory Council on Employee Welfare and Pension Benefit Plans, which has established a Working Group to study "guidance in selecting service providers." The purpose of the September 10 hearing was to obtain information on the nature of bundled service arrangements offered by mutual fund complexes and insurance companies and the benefits that bundled service arrangements might offer to employers. Leonard Larrabee, Senior Counsel at the Dreyfus Corporation, testified on behalf of the Institute.

Mr. Larrabee defined "bundled service arrangements" as an integrated package of administrative and investment services from affiliated or unaffiliated entities offered to the retirement plan market as a single product. He noted that these arrangements would include "one-stop shopping" programs offered by a single financial institution as well as "strategic alliance" programs that provide services from multiple vendors. Mr. Larrabee described the types of services typically included in bundled service programs and explained that the development of such bundled arrangements has enabled small plan sponsors more readily to obtain a full range of services, investment options, and educational material for participants. He noted these arrangements were also increasingly popular with larger plan sponsors as well.

Advisory Council members inquired whether plan sponsors, especially smaller, less sophisticated employers, are able to compare the variety of services offered and their costs when selecting a bundled service provider, and whether they understand their own continued fiduciary duty to monitor the arrangement after a service provider is hired. Council members also asked about the impact of bundled arrangements on data reconciliation and error correction and participant investment education. Finally, several Council members expressed more general concern about the persistent problem of pension coverage in the small employer community.