PLANADVISER - November/December 2019 - 11

The life expectancy and distribution
period tables in the proposed regulations
have been developed based on
mortality rates for 2021. These rates
were arrived at by applying mortality
improvement through 2021 to the experience
table mortality rates used to
develop the 2012 Individual Annuity
Mortality tables; those are the most
recent such tables.
State Insurance Regulators
Toughen the Standards
For Annuities
As the June 20, 2020, enforcement date
for the Securities and Exchange Commission
(SEC)'s Regulation Best Interest
(Reg BI) approaches, the National Association
of Insurance Commissioners
(NAIC) is updating its own suitability
standards, which apply to the sale and
service of annuities. Since 2003, state
insurance
regulators have
overseen
annuity sales to ensure products sold to
consumers are suitable for them based
on a review of their needs. The NAIC's
" Suitability in Annuity Transactions
Model Regulation (#275) " serves as a
basis for this regulatory framework.
Model #275 sets forth standards and
procedures for recommending annuity
products to consumers to ensure their
insurance and financial objectives are
appropriately addressed. Since the
model's original adoption, the standards
have been updated for consistency
with those issued by the Financial
Industry Regulatory Authority
(FINRA). Most states have enacted the
Model #275 updated version. According
to the Insured Retirement Institute
(IRI)'s chief legal and regulatory affairs
officer, Jason Berkowitz, all signs indicate
that the NAIC's revised Model
#275 will attempt to hold state-regulated
insurance producers to a higher
standard, which he says is a " best
interest standard. "
Another Recordkeeper Faces
Self-Dealing ERISA Lawsuit
Prudential faces a self-dealing lawsuit
filed by participants in its defined
contribution (DC) retirement plan. The
suit alleges various fiduciary breaches
under the Employee Retirement Income
Security Act (ERISA). Filed in the U.S.
District Court for the District of New
Jersey,
the ERISA complaint names
as defendants the Prudential Insurance
Co. of America, the Prudential
Employee Savings Plan Administrative
Committee, the Prudential Employee
Savings Plan Investment Oversight
Committee, and some 20 " John and Jane
Does. " At a high level, the suit alleges
that the Prudential defendants put the
interests of the company ahead of those
of the plan " by choosing investment
products and pension plan services
offered and managed by Prudential
subsidiaries and affiliates, which generated
substantial revenues for Prudential
at great cost to the plan. " According to
plaintiffs, as Prudential itself performs
all recordkeeping and administrative
functions for the plan, plus manages a
significant number of its investments, it
the current broadly drawn limitations
with principles-based provisions. The
proposed approach would also " permit
the use of testimonials, endorsements
and third-party ratings, subject to
certain conditions, and would include
tailored requirements for the presentation
of performance results based on an
advertisement's intended audience. "
MSSB Share Class Calculator Errors
Lead to Settlement With the SEC
Morgan Stanley Smith Barney (MSSB)
has agreed to settle litigation filed
by the U.S. Securities and Exchange
Commission (SEC). Background information
included in litigation documents
shows that, according to
MSSB, from at least July 2009 through
December 2016, in selecting the most
economical share class for certain
" ... business leaders suggest that, if the
act is not signed into law, more than
700,000 small-business workers will be
unable to save for retirement at work ... "
receives additional revenue in the form
of direct participant fees and indirect
fees via revenue sharing. Prudential did
not return a request for comment.
SEC Seeks to Modernize
Adviser Advertising Rules
The U.S. Securities and Exchange
Commission (SEC) voted in November
to propose a set of amendments meant
to modernize the advertising rules
and restrictions applying to advisers
under the Investment Advisers Act of
1940. According to SEC Chairman Jay
Clayton, the proposed amendments
are intended to update the advertising
rules to reflect changes in technology,
the expectations of investors seeking
advisory services, and the evolution of
industry practices. The rule amendments
are detailed in summary form
on the SEC's website, and the full rulemaking
language will appear soon in the
Federal Register.
In essence, Clayton
explained, the proposed amendments
to the advertising rule would replace
retirement plan and charitable organization
brokerage customers, it used
" share class limits, [a share class
selection calculator,] and other tools "
designed to offer customers the least
costly mutual fund share class. The
SEC alleged that three issues harmful
to customers had occurred. For one,
the calculator had two operating errors
whereby it sometimes recommended
less than the most beneficial share
class. Second, MSSB sometimes had
bypassed the calculator for less effective
tools.
The three actions represent violations
of Sections 17(a)(2) and 17(a)(3) of
the Securities Act, pertaining, respectively,
to obtaining money or property
by any untrue statement of material
fact and engaging in business that
operates as a fraud or deceit in offering
or selling securities. MSSB provided the
following statement to PLANADVISER:
" We are pleased to have resolved this
matter and have corrected the systems
issues that were the cause. " -PA
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PLANADVISER - November/December 2019

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