Are Certain Reactions to the Investment-Advice Regulations Ill-Advised?


On January 16, 2009, the Department of Labor announced that it had finalized its work under Sections 408(b)(14) and 408(g) of ERISA, which set forth the PPA's new investment-advice exemptions. The regulations were scheduled to be published in the Federal Register, and were so published, on January 21. On January 20, the President's Chief of Staff issued a memorandum, for which there is prior precedent, affecting pending regulations, including regulations like the investment-advice regulations which had not yet gone into effect. 74 Fed. Reg. 4435 (Jan. 26, 2009). The memorandum raises several possibilities relevant here, including the possibility of an extension of the effective date and a call for additional comments, which, if such steps were to transpire, would seemingly as a practical matter reconvert the regulations into proposals.

The final regulations, incorporating what had been a related proposed class exemption, came after a long, deliberative and consultational process. On the same day as the DOL's January 16 announcement, Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee, and Rep. Rob Andrews (D-NJ) issued a statement slamming the DOL's action. Their concluding statement was that, “[a]s we transition to a new administration, we will use every tool at our disposal to block implementation of this harmful regulation.”

For myself, I think that the result is regrettable, and I believe that the regulatory efforts both reflect Congressional intent and provide an important basis for the provision of expert financial advice to participants and beneficiaries that historically may not have had ready access to such advice. The fever pitch that certain members of Congress seem happy to generate by attacking the advisory community at a time when it may be relatively easy to do is to me unfortunate, to the extent that such a backdrop obscures the issues and makes rational discourse on them difficult or impossible. I guess I shouldn't be surprised when an issue like this becomes politicized, but I can still be disappointed.

The great irony here in my view is that the DOL personnel involved with the development of these rules were anything but pro-employer and pro-advisor. There has arguably been a consistently pro-participant bent generally running throughout EBSA from the senior through the junior levels, notwithstanding that the administration of which the DOL has most recently been a part at the time was stridently Republican. One need only look at the DOL's reaction to the PPA proposals and to the eventual enactment of the PPA, to the approaches taken in connection with the 5500s and 408(b)(2), etc., in order to get a sense of the DOL's concerns, approach and sensibilities. Thus, the notion that the "Bush administration" was somehow here "still scrambling to give Wall Street a last-minute payback" on its way out the door seems quite unfair. Rather, I think we more simply had diligent and committed DOL professionals who wanted to see the careful and balanced work they did in furtherance of implementing a statutory directive come to fruition, rather than evaporate in the wake of the inauguration.

It is understandably the flavor du jour to vilify Wall Street, and, to be sure, there patently is a difference of opinion out there regarding the pros and cons of the investment-advice exemptions. However, wherever one comes out on the PPA's new exemptions and the DOL's rulemaking in connection therewith, it seems hard to argue with the basic point that participants in participant-directed plans need high-level help and guidance regarding their management of these most-important investment assets. I would prefer that the open questions on this critical matter get resolved by a careful examination of the statute and what informed it, not through highly charged, emotional descriptions of what we now have before us and how we got to this point. But (with apologies for the grammar that's about to follow), that's just me . . .