Skip to main content

You are here

Advertisement

Leading Dems Call on DOL to Rescind Investment Advice Proposal

Fiduciary Rules and Practices
If you thought the battles over fiduciary rulemaking were over, think again. Top Democrats from the House and Senate committees that oversee ERISA-based issues are calling on the Department of Labor to withdraw its investment advice package and start over. 
 
In an Aug. 6 letter to Labor Secretary Eugene Scalia, Sen. Patty Murray (D-WA), the ranking Democrat on the Senate Health, Education, Labor and Pensions Committee, Rep. Bobby Scott (D-VA), the Chairman of the House Education and Labor Committee, Rep. Maxine Waters (D-CA), the Chairwoman of the House Financial Services Committee, Sen. Sherrod Brown (D-OH), the ranking Democrat on the Senate Banking Committee, and Sen. Ron Wyden (D-OR), the ranking Democrat on the Senate Finance Committee, along with 14 other House Democrats, expressed opposition to the DOL’s investment advice proposal. The letter was also signed by Sens. Elizabeth Warren (D-MA), Bernie Sanders (I-VT), Cory Booker (D-NJ), Chris Van Hollen (D-MD), Tammy Baldwin (D-WI), Tammy Duckworth (D-IL), Kirsten Gillibrand (D-NY), Dick Durbin (D-IL), Bob Casey (D-PA) and Kamala Harris (D-CA).
 
“We urge the DOL to immediately withdraw both the final rule and proposed PTE and start over with a focus on the best interests of workers and retirees,” the members wrote. “The final rule and the proposed [prohibited transaction exemption] are not in the best interests of retirement savers. The DOL should not only revisit and modernize the five-part test, but it also should meet its ERISA obligations in the PTE process,” they further argued. 
 
The letter goes on to suggest that “unscrupulous advisors” can get away with providing conflicted advice due to a regulation that dates to 1975, further noting that the five-part test from 1975 has not kept pace with the changed retirement savings landscape and was promulgated before the existence of 401(k) plans and widespread investments in IRAs.  
 
Taking Issue with Scalia
 
The letter takes Scalia to task, noting that the Obama administration sought to address the “insidious problem of conflicted advice” by promulgating a rule holding those who provide retirement investment advice to a fiduciary standard, but was overturned in a legal challenge led by Scalia prior to serving at the DOL. 
 
Citing an editorial by Scalia for The Wall Street Journal, the members note that he previously contended that under law, an agency must listen to what the public says about a proposed regulation, reconsider its approach in light of that input and then explain why it made the choices it did in crafting a final rule. “Yet, the DOL chose not to operate in that manner with regard to this final rule and proposed PTE. This is especially unsettling given your leading role in the financial services industry’s successful defeat of the DOL’s 2016 conflict of interest rule was raised at your Senate confirmation hearing,” the members wrote. 
 
“At the very minimum, your participation creates the appearance of a potential conflict of interest, which raises questions around whether the DOL will appropriately consider relevant comments and data in finalizing this proposal,” the members emphasize. 
 
What’s more, they suggest that, instead of spending “the past two years thoughtfully revisiting the issue in a way that would protect retirement savers from conflicted advice and modernizing the loophole-ridden five-part test, the DOL squandered the opportunity,” observing that the DOL merely opted to reaffirm the court’s decision by reinstating the five-part test. 
 
Rulemaking Process
 
The letter also calls out the DOL for seemingly rushing through the rulemaking process despite requests for a more deliberative process, including from Sen. Murray and Rep. Scott to extend the comment period. 
 
Murray had also requested that the DOL hold a hearing on the proposal. However, in an Aug. 5 letter from DOL Deputy Assistant Secretary Joe Wheeler, the department rejected the requests to extend the comment period and hold a hearing, contending that a public hearing is unnecessary for this proposed class exemption because the current proposal is “much narrower in scope” than the Department’s prior fiduciary rulemaking. Still, the Democrats’ letter argues that, under ERISA, the Secretary may not grant PTEs like those advanced by these proposals “unless he affords an opportunity for a hearing.” 
 
The Federal Register shows that the proposed PTE allowing investment advice fiduciaries under both ERISA and the Internal Revenue Code to receive compensation has received nearly 100 comments as of the Aug. 6 deadline to submit comments. The American Retirement Association’s comment letter notes that the DOL’s proposal gets it right on rollovers, but needs clarity on its application to PEPs and could stand a rethink on the “regular basis” prong of the five-part test. 
 
It is anticipated that the DOL will seek to implement the PTE in short order, after considering the various comments received and making adjustments as it sees fit. But don’t expect the congressional Democrats to walk away from this issue, particularly given the statutory procedures set up under the Administrative Procedure Act (APA) and Congressional Review Act (CRA).