Department of Labor and SEC Formalize Regulatory Cooperation

Two government agencies will work together more closely to strengthen oversight and regulation of retirement-savings products, according to an agreement signed Tuesday, July 29.

The Department of Labor and the Securities and Exchange Commission signed a document that permanently establishes the information-sharing arrangement that they have been developing over a number of years.

According to the memorandum of understanding, staff from the labor agency’s Employee Benefits Security Administration and the SEC will meet regularly to discuss industry trends and regulations. Each agency will grant the other access to nonpublic enforcement information under their purview.

The Labor Department regulates 401(k) and other types of retirement plans, and the SEC monitors brokerages, investment firms and mutual funds.

The agencies must increase their cooperation to keep pace with quickly evolving financial markets, said SEC Chairman Christopher Cox.

“Our markets are becoming more integrated,” Cox said at a Washington press conference.

Bolstering oversight is becoming urgent as companies replace defined-benefit plans with defined-contribution products that require employees to navigate markets on their own.

“Things have matured to the point that this is an important step to take today,” Cox said. “This will be a great, great thing for American investors.”

Appearing alongside Cox, Secretary of Labor Elaine Chao emphasized the importance of protecting nearly $2.3 trillion in defined-contribution assets invested by about 65 million workers.

“We want to enhance retirement security,” Chao said. “Having our agencies work together goes toward that goal.”

J. Mark Iwry, who was responsible for overseeing regulation of the private pension system as a Treasury Department official from 1995 to 2001, applauded the DOL-SEC partnership.

“Good government that helps sustain confidence in the retirement system involves a continual process of breaking down the silos that tend to build up around different government agencies,” said Iwry, a nonresident senior fellow at the Brookings Institution in Washington and a principal of the Retirement Security Project.

A recent example of a combined Labor-SEC activity was an alert about 401(k) debit cards. Investors were warned that if they borrow and spend from their retirement accounts, they will have to repay the money by a certain deadline or be hit with taxes and penalties.

That kind of effort is needed more than ever with the growing popularity of defined-contribution plans, Iwry said.

“As 401(k)s and IRAs account for an increasing share of retirement savings, it is increasingly imperative for American savers to get adequate disclosure and user-friendly information,” he said.

Last week, the Labor Department issued a regulation requiring greater transparency from 401(k)-type plans to participants regarding investment returns, fees and expenses.

—Mark Schoeff Jr.