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Senate Committee Report Disses ‘Flawed’ Fiduciary Rule, Process

ASEA Monthly

A staff report from the Senate Committee on Homeland Security and Governmental Affairs sharply criticizes the Department of Labor’s (DOL) fiduciary proposal and what it described as a “flawed process” in handing down that rule.

The report, “The Labor Department’s Fiduciary Rule: How a Flawed Process Could Hurt Retirement Savers,” was released by Sen. Ron Johnson (R-Wisc.), chairman of the Senate Homeland Security and Governmental Affairs Committee. “The Labor Department’s rule threatens to harm low- and middle-income Americans by increasing the cost of investment advice,” said Johnson. “Saving for retirement is important, and investing can be a complex process. Ensuring Americans’ access to investment advice will help them plan for retirement. Americans saving their hard-earned money shouldn’t face additional hurdles imposed by Washington.”

The report claims that the DOL disregarded concerns and recommendations from career, nonpartisan, professional staff at the Securities and Exchange Commission (SEC), as well as regulatory experts at the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB), and Treasury Department officials. The report also cites actions that it claims show signs that political appointees at the White House played a key role in driving the rulemaking process.

The claims the report makes include the following.
 

  • Despite public assurances that the DOL had collaborated with the SEC, emails reveal discord between the agencies about the rulemaking. A DOL employee wrote to his SEC counterpart: “We have now gone far beyond the point where your input was helpful to me… If you have nothing new to bring up, please stop emailing me.” The SEC staffer, financial economist Matthew L. Kozora of the Office of Asset Management, responded: “I am now also utterly confused as to what the purpose of the proposed DOL rule is.”

 

  • What it characterizes as “career, nonpartisan SEC staff” identified at least 26 items of concern related to the substantive content of the proposed rule, and the DOL declined to fully resolve all of the concerns.

 

 

  • The DOL rejected the SEC’s recommendation and ignored requirements set in executive orders to quantify the costs and benefits of alternative approaches. As a DOL employee explained, “We think this would be extraordinarily difficult and would appreciably delay the project for very little return.”

 

 

  • Treasury officials voiced concerns that the DOL’s proposal, by attempting to regulate IRAs, “fl[ies] in the face of logic” and was contrary to congressional intent. The DOL promulgated the proposed rule less than two weeks after circulating this draft, undoubtedly limiting the extent to which the department considered the comments it received from the Treasury Department.

 

 

  • The administration was predetermined to regulate the industry and sought evidence to justify its action. In emails to senior White House advisors, a DOL official wrote of the need to find literature and data that “can be woven together to demonstrate that there is a market failure and to monetize the potential benefits of fixing it.” In another email, a DOL official discussed “building the case for why the rule is necessary.”