Fiduciary Rule Comment Letters Flood in to DOL as Deadline Passes

Many in the retirement industry were not happy the comment period was so brief for the Department of Labor’s proposed “Retirement Security Rule: Definition of an Investment Advice Fiduciary,” but in the absence of an extension, the comment letters flooded in before it ended on Jan. 2. In fact, as of Dec. 27, more than 16,000 comments had been made, but many more were submitted on the final day.

Most of the comment letters shared with 401(k) Specialist  in the past couple of days expressed serious concerns with the proposed rule, with many calling for the DOL to withdraw it completely. Others expressed mixed support with calls for modifications to the proposed rule, while the Fiduciary Institute expressed support for the rule as is.

Here’s a sampling (and in the interest of length somewhat condensed version) of what several organizations are sharing regarding the proposed rule.

The Institute for the Fiduciary Standard

In its comment letter to the DOL expressing strong support for the proposed rule, Knut Rostad, President of The Institute for the Fiduciary Standard, also said they felt the need to focus on comments from groups that oppose the proposed rule.

“What we found, among other items, is the nature of the opposition to fiduciary rules has changed over the years. Once, anti-fiduciary brokerage groups opposed rulemaking. In this round of comments and testimony at the DOL, groups implicitly reject the very existence or relevance of fiduciary advice itself. This is different and a new low and disturbing. It calls into question whether such groups have lost their credibility and validity to have their views heard,” Rostad said.

In this round of comments and testimony at the DOL, groups implicitly reject the very existence or relevance of fiduciary advice itself. This is different and a new low and disturbing.

Knut Rostad

In a statement released by the Institute, Rostad went on to highlight three points:

“First, the Rule is essential to fill the gaps in federal regulation in investor protection left by the SEC’s Regulation BI and NAIC’s state model insurance rule. These gaps are ‘clear and present,’ yet rule opponents repeatedly testified the opposite. Facts be damned.

“Second, we strongly support the DOL proposal because it mirrors fiduciary principles we summarize in our letter and have been articulated over the past 90 years. This matters. We find in a review of the testimony from eight groups that oppose the rule broad-based unawareness, misunderstanding or indifference to what fiduciary means. This is implicitly a rejection of fiduciary advice itself and a new a new low from broker-dealer anti-fiduciary groups. Again, facts be damned.

“Third, this new stance that implicitly rejects the relevance of fiduciary advice, a stance far different from prior stances of broker-dealer anti-fiduciary groups, raises the question of whether their views should be considered serious at all.”

American Retirement Association

In its comment letter submitted to the DOL on Jan. 2, 2024, the American Retirement Association (ARA) expressed support for—yet specific issues with—the department’s proposed definition of “fiduciary investment advice” and amendments to PTE 2020-02.

From the letter:

“We agree with the principle that informs the Proposal: investors are best served when the interests of advisers and investors are aligned, and the standards owed to investors should be product neutral. The ARA writes now to:

• Express the critical need for rulemaking in this area; and

• Suggest specific revisions to the Proposal to address certain concerns.

Read ARA’s comment letter here.

The ERISA Industry Committee

In a Jan. 2 press release, the ERISA Industry Committee (ERIC) said it offered improvements to the proposed rule so that large plan sponsors will still be able to provide meaningful benefits to tens of millions of working Americans.

ERIC recommended changes that would allow employer human resources services to continue providing retirement-related information to workers, as well as investment education materials to workers and retirees. ERIC also recommended technical changes that would permit certain health savings account (HSA) service providers to continue providing investment-related services.

“DOL appears to realize that routine investment education and human resources engagement is valuable and should continue. However, without changes the proposed regulation could produce negative consequences for both retirement plans and health savings accounts,” said Andy Banducci, ERIC Senior Vice President, Retirement and Compensation. “The rule should ensure that employers and plans can continue to provide the information and services that workers depend on for their retirement and health savings security.”

The full text of ERIC’s response to DOL is here.

Insured Retirement Institute

The Insured Retirement Institute, which filed comments on the proposal on Jan. 2, is asking the DOL to withdraw its “harmful investment advice rule.”

The association criticized the proposal as a “solution in search of a problem” that “flies in the face” of a 2018 Fifth Circuit Court of Appeals decision to vacate a similar DOL rule promulgated in 2016.

“We do not believe the proposal can or should be ‘fixed,’ and nothing in this letter should be read to suggest or imply that IRI would support a modified version.”

IRI’s Wayne Chopus

“We are not requesting, recommending, or proposing modifications to any of the components of the proposal,” said Wayne Chopus, President and CEO at IRI. “We do not believe the proposal can or should be ‘fixed,’ and nothing in this letter should be read to suggest or imply that IRI would support a modified version. Instead, our comments are intended to explain the myriad reasons why the Department should withdraw the proposal and discontinue this regulatory project entirely.”

IRI went on to say the proposal ignores the current enhanced regulatory framework provided under the SEC’s Regulation Best Interest (Reg BI) and the NAIC best interest model regulation, adopted in 41 states, without providing evidence that the current regulatory framework is not working.

IRI noted further that the proposal fails to account for the benefits and costs associated with protected lifetime income guarantees that annuities provide.

“Throughout the proposal, the Department repeatedly conflates annuities and other insurance products with mutual funds, other securities products, and other non-securities products such as real estate and commodities,” added Jason Berkowitz, Chief Legal and Regulatory Affairs Officer at IRI. “This ignores the intrinsic value of insurance guarantees of safety and security, as well as the added time and work needed for a financial professional to fully understand annuity products and how they should and should not be used and to convey that information to their clients effectively.”

IRI also took aim at DOL’s characterization of its proposed regulation as requiring financial professionals to act in clients’ best interests when, in fact, the Employee Retirement Income Security Act (ERISA) requires a “sole interest” standard.

IRI said the more stringent sole interest standard is unworkable in the context of business models that pay compensation based on completed transactions rather than the provision of advice. According to IRI, by improperly and inaccurately conflating ERISA’s sole interest standard with the best interest standard imposed under Reg BI and NAIC’s best interest model regulation, DOL and supporters of the proposal have exacerbated the risk of confusion regarding the different standards that apply in different circumstances.

“We respectfully suggest that the Department should reevaluate its priorities and focus on enforcement of existing rules and implementation of new Congressional directives such as SECURE and SECURE 2.0 rather than continuing to divert its limited resources to this unnecessary and dangerous rulemaking project,” IRI wrote.

Read the IRI comment letter here.

Investment Company Institute

Investment Company Institute (ICI) President and CEO Eric Pan released the following statement Jan. 2 regarding the Department of Labor’s proposed rule:

“The DOL’s proposed fiduciary rule will have negative implications on millions of Americans saving for retirement. If finalized, the proposal could result in large portions of middle class American families losing access to crucial investment information and guidance and having fewer choices in the marketplace.

“ICI understands and appreciates the DOL’s interest in ensuring that American workers receive the advice and guidance they need to save for a secure retirement. However, the proposal entirely misses the mark. It will cost billions of dollars and produce significant unintended consequences, harming the very retirement savers it intends to protect.

“Above all, the proposal is legally flawed. It ignores past case law, exceeds the DOL’s authority, and falls short of applicable administrative law standards. The proposal should be withdrawn.”

Read the ICI comment letter here.

National Association for Fixed Annuities

NAFA, the National Association for Fixed Annuities, submitted a letter in response to the Department of Labor’s request for comments and urged the DOL to withdraw the fiduciary advice proposal in its entirety, citing what it calls “fatal flaws” and potential harm to independent producers, carriers and consumers.

The comment letter details NAFA’s concerns regarding the Department’s new definition of persons who render investment advice as fiduciaries under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code, and its potentially harmful implications for insurance agents and financial professionals who sell fixed annuities.

Key points within NAFA’s letter:

• the proposal reflects a false assumption on the part of the Department that it holds the authority to comprehensively regulate standards of conduct applicable to broker-dealers, registered investment advisers, and insurance agents;

• the proposal jettisons the “primary basis” prong of the five-part test for determining fiduciary status as set forth in the Department’s longstanding 1975 regulation;

• the Department failed in its attempt to reconcile the Fifth Circuit’s Chamber decision by simply making all rollover transactions fiduciary in nature without regard to what type of services or product offerings an independent agent is providing a client;

• the proposed amendment of PTE 84-24 would overturn the settled expectations of the life insurance and annuity provider community—formed over a period of more than 40 years;

• the Department’s preference for PTE 2020-02, which is largely designed around a broker-dealer distribution model, ignores the fact that different segments of the industry are subject to differing bodies of law and regulatory oversight; and

• the proposal threatens to place unnecessary, administratively burdensome and risk-inducing requirements upon insurance carriers and independent producers, which could ultimately put many small businesses and entrepreneurs out of business, leaving a sea of retirement-nearing and retirement-ready individuals left without professional financial help.

Read the NAFA comment letter here.

Charles Schwab & Co.

The introduction to the public comment letter Charles Schwab & Co. filed on Jan. 2, which begins by saying, “We respectfully urge the Department to withdraw its Proposal, rather than embark on an ill-fated sequel to its 2016 rulemaking in this area,” goes on to provide a concise overview of the company’s concerns. Here are a few key bullet points:

• The Department fails to provide a coherent rationale for the Proposal’s adoption, which would result in regulatory confusion, not “uniformity,” and undermine key regulatory developments of the last several years.
• [The Rule] also defies ERISA’s statutory text, exceeds the Department’s authority, and curtails the availability of financial advice. There are better ways to bring prosperity and security to individual investors, which Schwab welcomes the opportunity to discuss.
• The regulatory impact analysis does not adequately account for the Proposal’s impact on plans and individual investors…If the Proposal is finalized, the result—again—will be less education and guidance for individual small investors, lower savings, and reduced retirement security.
• The Proposal is wrong as a matter of law and policy and is destined to meet the same fate as its 2016 predecessor. There are ample opportunities for industry and the Department to partner on expanding the accessibility and affordability of investment advice, where our collective energies would be better expended. The Department should dedicate its efforts there, and not proceed further with this mistaken rulemaking.
• The Department’s proposed definition contradicts the statutory text and contravenes the Fifth Circuit’s decision which vacated the Department’s last attempt to impose an overbroad definition of “fiduciary” under ERISA and the Tax Code. The term “fiduciary” is not ambiguous and may not be construed to capture broker-dealers and other financial professionals giving one-time advice. That the Department’s proposed definition would encompass such personnel is, therefore, a fatal flaw.

Institute for Portfolio Alternatives

The Institute for Portfolio Alternatives on Jan. 2 filed a strongly worded, detailed comment letter with the Department of Labor, decrying the negative impact its proposed “Retirement Security Rule: Definition of Investment Advice Fiduciary” and related exemption amendments would have on retirement saver’s investment choices and access to different business models and products.

The letter urges the DOL to withdraw the proposal and expresses concerns about a host of legal and practical flaws. These concerns include conflicts with the Fifth Circuit’s 2018 decision on the Department’s 2016 Fiduciary Rule and the text of ERISA.

Read IPA’s comment letter here.

SEE ALSO:

• Fiduciary Comments Hit 16k as DOL Releases Hearing Transcripts

• ‘A’ List Industry Lineup Set to Testify in Dec. 12-13 Fiduciary Rule Hearing

• DOL Fiduciary Rule Released; Industry Reaction Pours In