PLANADVISER - September/October 2021 - 9

and Rule 206(4)-7 of the Advisers Act in
connection with their breach notifications
to clients.
Without admitting or denying the
SEC's findings, each of the firms agreed
to cease and desist from future violations
of the charged provisions, to be
censured and in addition, to pay a
penalty. The Cetera entities will pay a
$300,000 penalty; Cambridge will pay
a $250,000 penalty; and KMS will pay a
$200,000 penalty.
Form 5500 Revisions
The Department of Labor (DOL), via its
Employee Benefits Security Administration
(EBSA), has joined the IRS and
the Pension Benefit Guaranty Corporation
(PBGC) in requesting public
comments on proposed revisions to
the Form 5500 annual return/report.
At the same time, EBSA is publishing
a notice of proposed changes to its
implementing regulations under Title
I of the Employee Retirement Income
Security Act (ERISA). The proposed
changes also include a limited number
of other improvements to the annual
return/report forms and instructions,
says Acting Assistant Secretary
for Employee Benefits Security Ali
Khawar.
The key proposed revisions and
changes to the department's implementing
regulations would do the
following:
* Modify the Form 5500 annual
return/report and the department's
regulations to implement the SECURE
[Setting Every Community Up for
Retirement Enhancement] Act requirement
for the DOL and the Department
of the Treasury to develop a consolidated
annual report for groups of
defined contribution (DC) retirement
plans. Specifically, the proposal would
establish a new type of direct filing
entity called a defined-contributiongroup
(DCG) reporting arrangement
and add a new Schedule DCG (Individual
Plan Information)
that
requirements
for
such
reporting groups must file, in addition
to meeting more generally applicable
Form 5500
large
pension plans, where pertinent.
* Modify the Form 5500 annual
return/report to reflect pooled
employer plans (PEPs) as a new type of
retirement plan. Also it would implement
SECURE Act changes as to how
participating employers report information
about their multiple employer
retirement plan (MEP), by establishing
a new Schedule MEP (Multiple Employer
Retirement Plan Information). Additionally,
for multiple employer welfare
plans that provide medical benefits,
the proposal would move the questions
regarding participating employers that
are currently part of the Form 5500
Annual Return/Report to Form M-1
and apply that reporting requirement
to non-plan entities that file Form M-1.
* Improve financial reporting for
retirement plans in general, including
PEPs, other MEPs and the new DCG
reporting arrangements. The proposed
improvements would add new fee and
expense reporting requirements and
enhance the format and content of the
existing schedules of assets held for
investment.
* Expand the number of DC pension
plans that would be eligible for smallplan
simplified reporting options,
including the conditional waiver of the
independent qualified public accountant
annual audit.
* Add questions to improve financial
and funding reporting by PBGCcovered
defined benefit (DB) pension
plans and to improve oversight and
compliance of tax-qualified retirement
plans.
The publication of the proposals
starts a 45-day comment period. The
DOL says it will treat public comments
submitted in response to this Notice
of Proposed Forms Revisions as public
comments on the Notice of Proposed
Rulemaking-and vice versa.
Revenue-Sharing Disclosure
Failures Result in SEC Action
The Securities and Exchange Commission
(SEC) filed an order in midSeptember
to commence administrative
and cease-and-desist proceedings
against MML Investors Services LLC
(MMLIS), pursuant to Section 15(b) of
the Securities Exchange Act of 1934
and Sections 203(e) and 203(k) of the
Investment Advisers Act of 1940.
Importantly, the order contains final
findings and imposes remedial sanctions
and cease-and-desist requirements
on the firm, which the SEC
accuses of several fiduciary breaches
related to the use of revenue sharing.
It also presents a learning opportunity
for financial services professionals and
their clients who use revenue sharing
within fiduciary investment accounts
and relationships.
As summarized in the order, the
proceedings arise out of breaches of
fiduciary duties by MMLIS, a dually
registered investment adviser (RIA)
and
broker/dealer
(B/D), and MSI
Financial Services Inc. (MSI), a former
RIA and B/D that was integrated
with MMLIS in March 2017. The order
says these breaches came about as a
result of third-party compensation
that MMLIS and MSI received based
on their advisory clients' investments
" without fully and fairly disclosing
their conflicts of interest. "
" In particular, during certain
periods since at least March 2015,
MMLIS and MSI invested clients in
certain share classes of mutual funds
that
resulted in the firms receiving
revenue-sharing payments pursuant
to agreements with their unaffiliated
clearing broker, " the order states. " In
spite of these financial arrangements,
MMLIS and MSI provided no disclosure
or inadequate disclosure of the
conflicts of interest arising from this
compensation. "
According to the SEC, MMLIS and
MSI also breached their duty to seek
best execution by causing certain advisory
clients to invest in share classes
of mutual funds that paid revenue
sharing when share classes of the same
funds were available that presented a
more favorable value for the clients,
under the circumstances at the time of
the transactions.
" Furthermore, MMLIS and MSI
failed to adopt and implement written
compliance policies and procedures
reasonably designed to prevent violations
of
the Advisers Act and the
rules thereunder in connection with
its mutual fund share class selection
practices and disclosure of conflicts
of interest arising out of its revenuesharing
practices, " the order states. " As
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PLANADVISER - September/October 2021

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