The Department of Labor’s controversial proposed retirement security regulation was the subject of additional Congressional scrutiny today as the second committee in two months held a hearing to further examine the rule.
“Protecting American Savers and Retirees from DOL’s Regulatory Overreach” was the title of the hearing, held by the Committee on Education & the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions.
The Insured Retirement Institute (IRI) was again invited to testify about the proposal, represented by Chief Legal and Regulatory Affairs Officer Jason Berkowitz. Also testifying today were Iowa Insurance Commissioner Doug Ommen, Groom Law Group Principal Thomas Roberts, and Joseph C. Peiffer, President, Public Investors Advocate Bar Association.
“The proposal could have significant repercussions for the insurance regulatory framework and negatively impact consumers,” Ommen said during his testimony before the committee. “Given the retirement savings gap, the Department of Labor should be encouraging, not limiting, access to well-regulated retirement guidance and products, such as annuities.”
Ommen went through the specific objections he has with the proposal, outlined in his written testimony to the committee and in the official comment letter his office sent to the DOL on Jan. 2.
IRI said that the DOL has hypothesized that regulatory gaps exist and are being exploited to harm retirement savers, but it has produced no evidence to support that theory.
“If bad actors are exploiting regulatory gaps to harm retirement savers, such gaps should be addressed through targeted rulemaking,” Berkowitz said in his testimony. “But a targeted approach is impossible withoutclear evidence of a problem. So instead, the DOL wants to completely upend the existing regulatory framework.”
Berkowitz said that IRI has long supported the application of a best interest standard to firms and financial professionals who provide guidance or recommendations about insurance or investment products to retirement savers.
IRI believes existing regulations effectively require that firms and financial professionals act in the best interest of their clients and that today’s regulatory framework—including the U.S. Securities and Exchange Commission’s Regulation Best Interest (Reg BI) and a National Association of Insurance Commissioners (NAIC) model best interest regulation adopted by 42 states—provides the necessary protections to maintain this standard.
“I am here to oppose the DOL’s proposal, which goes far beyond a best interest standard and would harm those who most need the guidance and assistance of financial professionals,” Berkowitz said.
In 2016, DOL issued a similar rule that a study found caused more than 10 million retirement savers to lose access to their preferred financial professional before a federal appeals court vacated it in 2018. Recent IRI research shows that retirees who use a financial professional have more savings, less debt, and greater financial security.
“IRI and many other stakeholders have expressly and painstakingly detailed the negative impact this rule will have on consumers who will lose access to the financial professional of their choice and the protected lifetime income products and strategies that can help ensure they do not outlive retirement savings,” said Wayne Chopus, President and CEO at IRI, in a blog post today.
“The value that financial professionals deliver to consumers stands to be stripped away by the DOL’s misguided, unnecessary, and redundant proposed rule,” he said.
During his testimony, Berkowitz also took issue with a DOL characterization of its proposal as a “best interest” rule.
“They have characterized the proposal as a “best interest rule,” even going so far as to assert that anyone complying with Reg BI should have no problem operating under the proposal. This is not true,” he said.
“Best interest rules adopted by the SEC and 42 states and counting are working without putting unnecessary roadblocks between consumers and the products and services they need,” Berkowitz said. “The DOL should recognize the limits of its jurisdiction and let the SEC and state insurance departments do their jobs as Congress intended. This proposal is not fixable. It is not needed. It must be withdrawn.”
PIABA testifies proposed rule is needed
For his part, PIABA’s Peiffer said that protecting retirees from advisor misconduct is not a “radical concept.” Citing data from the Council of Economic Advisers, PIABA’s Peiffer released a statement today saying conflicted advice costs retirement savers least $17 billion per year—and that the DOL rule would fix this.
“Investors’ beliefs that their financial professional have their best interest in mind is due at least in part to these advisors and their trade associations marketing that way. Investment professionals routinely use titles, such as ‘financial advisors,’ ‘financial consultants,’ or ‘wealth managers,’ or even ‘wealth architects.’ One company even claims to put ‘your needs first … focused on fulfilling our promises and doing what’s best for policy owners, not delivering profits for others.’ There are countless examples of marketing just like this,” Peiffer’s statement said.
“Yet, when we attempt to hold these advisors to account for conflicted advice, the advisors and the companies they work for claim that they owe these investors no duty to act in their clients’ best interest. The advisor is just a salesman,” Peiffer said.
“The DOL rule would fix this. It should not be the case that an advisor can pretend to be a fiduciary to induce an investor to trust them and then pull the rug out in the fine print that disclaims any such duty, which happens routinely. The DOL rule would put a stop to this abusive practice and ensure that investors that have been told to trust their advisor are entitled to non-conflicted advice.”
PIABA’s testimony cites dozens of examples of hard-working American retirees who lost their life savings due to conflicted advise. Many were forced to sell their homes or return to the workforce, and some even attempted suicide. Full text of the testimony is available here.
Watchdog group criticizes rule’s critics
Accountable.US, which bills itself as a nonpartisan watchdog group with a stated purpose to expose corruption across all levels of government, criticized today’s hearing as a partisan attack by Republican committee members against the Biden administration’s Retirement Security rule.
Accountable.US has previously called out financial groups IRI and the U.S. Chamber of Commerce for “their vigorous anti-regulation and advice-for-commission stance, which has driven up the cost of retirement by the billions at the expense of American families.”
The watchdog group calls the proposed rule a major initiative cracking down on junk fees in retirement investment advice. Despite industry objections, the rule is expected to add up to 20% to the average retirement savings for a middle-class saver by the time they reach retirement, Accountable.US said in its statement today, citing the White House Fact Sheet released on Oct. 31.
“The Biden administration is making sure retirement advisors put their clients’ best interests ahead of their own self-interest. The move will bolster retirement security and savings for many Americans, and that apparently upsets House Republicans in the pocket of Wall Street,” said Accountable.US’ Liz Zelnick. “Planning for retirement is difficult enough without the added pressure of navigating junk fees and wondering if your financial advisor is making the right choice for you or for them. As the industry attempts to strong-arm its way out of crucial regulation, the Biden administration is fighting to lower costs for American families by ensuring every person receives the same quality of advice.”
EDITOR’S NOTE: This article has been amended to add in viewpoints expressed in a statement from PIABA’s Joseph C. Peiffer, which was provided to 401(k) Specialist after initial publication of this article.
SEE ALSO:
• Retirement Security Rule Would Cost 11 Times More than DOL Estimate: Report
• Congress Voicing Concerns with DOL Fiduciary Rule Proposal
• Fiduciary Rule Comment Letters Flood in to DOL as Deadline Passes