The scuttlebutt in the Beltway is heating up with rumors that the Department of Labor’s new fiduciary rule proposal—which has been under review at the White House Office and Management and Budget since Sept. 8—will be published and finally available for public evaluation potentially as soon as this week.
While 401(k) Specialist interviewed Lisa Gomez, the Labor Department’s assistant secretary for the Employee Benefits Security Administration (EBSA) on the latest 401(k) Specialist Pod(k)ast out today, she kept details about the timing close to the vest.
“I can’t say much about the new proposed rule, other than you can expect to see it in the not-too-distant future,” Gomez said.
The OMB website reveals that retirement, insurance industry and investor protection advocates have all been meeting in recent days with the OMB about the controversial proposal—known officially as “Conflict of Interest in Investment Advice”—which is one of the final steps before it can be finalized and released for what is sure to be plenty of public comment from various stakeholders.
Of keen interest to advisors, the proposal is expected to address rollover recommendations, which is something noted ERISA expert Fred Reish of Faegre Drinker could mean a significant change.
On a new ERISA Moments podcast, Reish said the DOL wants to shift its provision from years ago where a rollover recommendation standing alone is not fiduciary advice to where it does constitute fiduciary advice.
“If you earn money from advising or recommending investments to the rollover IRA, then that’s a prohibited transaction and you have to obtain the protection of an exemption,” Reish said. “I would bet money that there is a fiduciary definition in there that one way or another says a rollover recommendation is fiduciary advice.”
The proposal is also expected to address rollover recommendations to annuities being subject to more stringent standards and whether investment advisors are compensated in ways leading to “harmful conflicts of interest.”
How the process will unfold
Here’s a look at how the process is expected to shake out: After the OMB review is completed, the DOL will issue a Notice of Proposed Rulemaking (NPRM) in the Federal Register and will open the proposed rule for public comments. The comment period will likely last for 60 days, and the DOL will then take those comments into consideration and go to work on a final regulation, taking another 60 to 90 days. Then it goes back to the OMB for review, and another 30 to 60 days after that it will get published in the Federal Register and become final.
Because of the time constraints imposed under the Congressional Review Act for an agency rule to take effect, it is anticipated that the DOL and the Biden Administration will try to finalize the rule no later than November 2024.
Doing so could trigger another set of lawsuits. The National Association for Fixed Annuities (NAFA), for example, said as much in a statement released Sept. 12 after the proposal was sent to OMB.
“After the comment period concludes, if DOL chooses to finalize a version of the regulation we perceive as harmful to our stakeholders—including the millions of Americans who rely on the products and professional advice our members passionately provide—NAFA will use all means necessary, either in conjunction with the joint trades or independently, to litigate this matter once again,” the statement read.
Opposition and support
A broad range of industry stakeholders have already met with OMB about the proposal, including the American Retirement Association, NAFA, the Insured Retirement Institute (IRI), and the Institute for the Fiduciary Standard, among several others.
The Insured Retirement Institute completed its meeting with OMB via conference call on Friday, and following the call, IRI sent a letter to OMB summarizing the discussion, shared with 401(k) Specialist.
While no text of the actual new proposal was available to IRI (or anyone else outside of regulators until it is published in the Federal Register), the leading trade association for the insured retirement industry said that during the meeting it stressed a variety of issues it has with what it expects the proposal to include.
Among them, that such a rule would have a significant adverse impact on the ability of lower- and middle-income workers to access professional retirement planning assistance and affordable retirement planning products, including guaranteed lifetime income products such as annuities.
Another viewpoint stressed by IRI was that there is no demonstrated need for this rulemaking at this time, as “the vast majority of financial professionals who sell securities and insurance products are dedicated to acting in the best interest of their customers, as they are already required to do under the existing regulatory framework.”
IRI went on to cite the SEC’s Regulation Best Interest, the fiduciary standard imposed on RIAs and investment adviser representatives under the Investment Advisers Act of 1940, existing DOL regulations, including PTE 2020-02, adopted by the DOL in 2020, and state insurance laws and rules based on a model regulation developed by the National Association of Insurance Commissioners in 2020.
IRI also said that when the 2016 rule (since vacated by the Fifth Circuit in 2018) was in effect, more than 10 million smaller retirement account owners, with more than $900 billion in retirement savings, lost the ability to work with their preferred financial professionals as a direct result of that rule.
For its part, NAFA is urging the OMB to reject the DOL’s recent rule proposal and “allow the existing enhanced state and federal consumer protection regulations to continue to do the good work that they are intended to do – and are, in fact, doing.”
In a statement released after its meeting with OMB last Friday, NAFA said, “despite the DOL’s public protestations to not call the new proposed rule a ‘fiduciary’ rule, we expect that the rule will be another de facto fiduciary-only rule, similar to the 2016 rule, which will have devastating consequences on the ability of low- and middle-income savers and retirees access affordable financial advice and safe retirement products.”
Meanwhile, the Consumer Federation of America is on the record as saying that the SEC’s Reg BI and the NAIC model rule are insufficient, and that the DOL needs to “update the fiduciary rule to protect retirement investors from investment advice tainted by conflicts of interest.”
EDITOR’S NOTE: This article has been updated to include new information provided by NAFA today.
SEE ALSO:
• New DOL Fiduciary Rule Under OMB Review; Gets Bashed by Insurance Trade Groups
• Talking DOL Retirement Saving Priorities with EBSA Head Lisa Gomez
• ‘Groundbreaking’ DOL Advisory Opinion for Citibank Provides ERISA Guidance
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
