Various lawmakers on Capitol Hill are expressing either support or opposition to the Department of Labor’s final fiduciary rule released earlier week—called the “Retirement Security Rule.”
The final regulation, published Thursday in the Federal Register, amends the definition of “investment advice.” Under ERISA, if someone is deemed to be providing investment advice, they must do so in accordance with ERISA’s fiduciary standards. Those standards require that investment advice must always be given in the best interest of retirement plans and participants.
“DOL’s new retirement rule will save Americans billions of dollars as they prepare for retirement by ensuring that savers receive retirement advice in their best interest, rather than in the interest of retirement professionals,” reads a White House statement on the rule’s release. “By preventing hard-earned savings from being lost in hidden fees from bad advice, Americans can save up to 20% more in retirement savings.”
The White House statement continued to say that “hidden fees” from bad advice on just a single product—fixed index annuities—is currently costing savers as much as $5 billion per year. “The rule will require trusted investment advice providers to give prudent, loyal, and honest advice, and prevent them from providing recommendations that favor the investment advice providers’ interests—financial or otherwise—at retirement savers’ expense. These new safeguards will save tens or even hundreds of thousands of dollars per impacted middle-class saver.”
Rep. Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, congratulated the Biden-Harris Administration for “a job well done on behalf of our nation’s workers, investors, and retirees.” Earlier this month, Waters led 55 House Democrats in sending a letter to DOL and the Office of Management and Budget urging the agencies to quickly finalize this rule.
“I am pleased to see that the Administration has heeded these calls and finalized a strong rule that would create needed guardrails and protect working families and retirees from conflicted financial advice,” Waters said in a statement. “As I have long said, conflicted financial advice, which costs retirement savers at least $17 billion per year, is an enormous burden on moderate-income and working families, many of whom are typically only able to save for retirement in small amounts and can’t afford the junk fees and financial losses associated with conflicted advice. It is way past time for the federal government to close the long-standing loopholes to ensure that financial professionals give advice that is prudent and not harmful to workers, investors, and retirees.”
“It is way past time for the federal government to close the long-standing loopholes to ensure that financial professionals give advice that is prudent and not harmful to workers, investors, and retirees.”
Rep. Maxine Waters (D-CA)
She commended the DOL for its “thoughtful and deliberative approach to rulemaking – including clarifying the rules in areas that members of the public highlighted and staying squarely within its authorities.”
Senator Patty Murray (D-WA), a senior member and former Chair of the Senate Committee on Health, Education, Labor, and Pensions (HELP), praised the rule for enhancing retirement saver protection.
“It’s been a long road, but I’m pleased to see the Biden Administration put forward a rule that will protect retirement savers and the nest eggs they rely on from conflicts of interest. This rule is going to strengthen people’s retirement resources, save them money, and ultimately save them from potential financial heartache by helping them get sound financial advice that is truly in their best interests,” Murray said.
A press release noted that Murray pushed hard in support of a rule that would protect families’ retirement security during her time leading the Senate HELP Committee. She sharply criticized the Trump Administration for undermining and ultimately abandoning a previous, Obama-era protection, and blasted the Trump Administration’s “entirely lackluster” replacement proposal.
Republican lawmakers voice opposition
Meanwhile, on the Republican side of the Senate HELP Committee, ranking member Bill Cassidy, M.D. (R-LA) and Ted Budd (R-NC) slammed the final rule, saying in a statement it expands DOL’s regulatory power over financial advisors, drastically increasing their cost of compliance and restricting access to retirement investment savings for the majority of low-income Americans.
“The Biden administration’s priority should be making it easier for Americans to invest for a secure retirement. Instead, this policy imposes burdensome regulations that restrict investing opportunities, especially for those who are lower- and middle-income,” said Dr. Cassidy.
The release notes that currently, financial advisors are required to abide by the best interest standard, which they say protects Americans from being sold deficient products while allowing them to buy from broker-dealers without having to pay for the more expensive fiduciary-level advice.
“The Biden administration’s proposed rule not only poses a significant risk to consumers, investors, and the financial services industry, but it also threatens our economic stability,” Sen. Budd said. “It also creates unnecessary bureaucratic burdens, duplicates existing regulations, hinders innovation, and threatens to leave investors in the dark. Congress and the courts should act swiftly to stop this harmful rule from taking effect.”
The new Biden policy, Cassidy and Budd say, is similar to the previous Obama-era fiduciary rule that had significant negative impacts on American investors. Specifically, they pointed to a 2017 study of one-third of American financial advisors found that 29% of brokers limited their services, while 24% removed whole suites of services due to the rule, disproportionately harming lower- and middle-income savers. Additionally, 95% of brokers made changes to the products available to retirement investors, including eliminating or limiting asset classes offered. In 2018, the Obama fiduciary standard was struck down in federal court due to violations of congressional intent.
Last year, Cassidy rebuked the proposed regulation and urged DOL to cease any further action to amend the definition of an investment advice fiduciary. Additionally, Cassidy highlighted DOL’s multiple conflicting positions on the fiduciary rule and how it has caused serious damage to American savers.
House Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) also released a statement this week opposing the DOL final rule.
“This rule will throw countless retirement plans, retirees, and savers into a regulatory nightmare, and that is why I have immediate plans to introduce a Congressional Review Act Resolution of Disapproval to nullify this harmful rule.”
Rep. Rick Allen (R-GA)
“DOL failed to learn from its own past blunders. This final fiduciary rule mirrors its shameful predecessor that was vacated by the 5th U.S. Circuit Court of Appeals in 2016,” Foxx said. “The final rule once again encroaches on the regulatory jurisdictions of the Securities and Exchange Commission and state insurance regulators. This regulatory overreach runs counter to the will of Congress and court decisions.”
Foxx concluded by saying her Committee will “continue to push back on the Biden administration’s efforts to harm Americans’ retirement security.”
Rep. Rick Allen (R-GA) also accused the DOL of overreaching its authority with the final rule and said in a statement he will take action to stop it from taking effect.
“This rule will throw countless retirement plans, retirees, and savers into a regulatory nightmare, and that is why I have immediate plans to introduce a Congressional Review Act Resolution of Disapproval to nullify this harmful rule and protect American families’ access to financial planning resources,” Allen said.
Pending legal and procedural challenges, the regulation is scheduled to take effect on Sept. 23, 2024. Some parts carry a one-year transition period after that date for full implementation, according to a DOL Fact Sheet.
SEE ALSO:
• Fiduciary Rule Reaction: For and Against
• Republican Lawmakers Push DOL to Halt Work on Fiduciary Rule
• Latest Changes Made to the DOL’s Final Fiduciary Rule
• DOL Final Fiduciary Rule Released, Set to Become Effective in September