A group of insurance trade organizations are pushing to halt a U.S. Department of Labor (DOL) rule that would extend fiduciary status to insurance agents and professionals.
The Insured Retirement Institute (IRI) and ten other organizations, including the American Council of Life Insurers and the National Association of Insurance & Financial Advisors, issued a letter on Monday urging the DOL to pause on finalizing the proposed “Retirement Security Rule: Definition of an Investment Advice Fiduciary,” and instead asked regulators to continue its public comment process.
The letter was directed to DOL Secretary Julie Su, White Office of Management and Budget (OMB) Director Shalanda Young, and Office of Information and Regulatory Affairs Administrator Richard Revesz.
The organizations accused the DOL and the OMB of rushing through its review in order for the rule to take effect before the November election. The OMB previously indicated on its website that it had wrapped up its review as of April 10, 2024, despite beginning on March 8. The regulator is allowed to take up to 90 days in its evaluation.
Additionally, organizations listed the DOL’s “historically short comment period”, along with its hearing in the middle of the process, as techniques the regulator took to push the rule forward.
“It is paramount that the rulemaking process include careful scrutiny and a robust public policy dialogue. We have grave concerns regarding DOL and the Office of Information and Regulatory Affairs’ [OIRA] extremely short review of a major rule that displayed little interest in public input and collaborative discourse,” wrote the organizations.
‘Devastating’ impacts to low and middle class
In voicing its concerns, organizations acknowledged connections to the DOL’s 2016 fiduciary rule, which was vacated in 2018 following a vote by the U.S. Court of Appeals for the Fifth Circuit. Specifically, the groups alleged that the new rule, like the last, would impact low- to- middle income Americans by discouraging financial professionals to advise on smaller accounts.
The groups referenced a Deloitte report that found that 53% of financial institutions reported limiting or eliminating access to brokerage guidance for retirement accounts back in 2017. The firms estimated the total impact to be around 10.2 million accounts, or $900 billion in assets under management (AUM).
“The ramifications of this proposed rulemaking are extensive, making the need for public comment and careful review critical. In the view of many experts, DOL’s 2016 rule had devastating effects on low- and middle-income individuals,” organizations wrote. “We anticipate similar impacts should the proposal go final with little change.”
It’s a similar take the Investment Company Institute made in a viewpoint issued last week. The letter, written by ICI Deputy General Counsel of Retirement Policy Elena Barone Chism, added that if the rule were enacted, retirement savers and plan sponsors would receive little help from financial advisors when establishing a 401(k) plan or retirement account; understanding how to allocate assets among available products or strategies; the types of annuity strategies that would be appropriate for their retirement; and more.
The ICI says the rule would also impact individuals’ ability to consolidate and keep track of retirement savings over the course of their careers, as it says advisors would be disincentivized to advise clients on IRA rollovers.
“Under the rule, however, any communications regarding those rollovers could be treated as fiduciary advice, significantly increasing the compliance burdens and liability associated with them,” the ICI writes. “That would likely result in far fewer rollovers, making it harder for many workers to efficiently manage their retirement assets.”
Ultimately, both letters cite concerns that the rule would take away resources and tools that progressed retirement planning education and features.
‘Level the playing field’
The letters come just a week after Department of Labor Assistant Secretary for EBSA Lisa Gomez told attendees at the NAPA 401(k) Summit that the rule would “level the playing field” for financial and insurance professionals alike, all for the mutual goal of protecting retirement plan participants.
“We’re trying to the extent possible to make this not so difficult and to draw upon what works for everyone so we can have just one level playing field,” Gomez said in a sit-down interview with American Retirement Association CEO Brian Graff. “How can we best do that so that we can end up at the other side in a better place where people know what’s expected of them and people know what to expect of investment advisors?”
“At the end of the day, we just want there to be protection for plan participants,” Gomez later concluded.
SEE ALSO:
- Final Fiduciary Rule Coming Soon as OMB Completes Review
- Gomez: DOL Fiduciary Rule Seeks to ‘Level the Playing Field’
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
