Hearing Revealed Room for DOL Compromise on Fiduciary Rule


The past week of developments on the fiduciary rule—most prominently a four-day hearing on the Department of Labor's proposed update to the definition of “fiduciary” under ERISA—showed conflicts between the DOL and financial industry groups, but also areas in which the department might be willing to compromise.

The DOL is least likely to give ground on its proposal (RIN 1210-AB32) by deferring to the Securities and Exchange Commission and the Financial Industry Regulatory Authority on a “harmonized” best-interest standard, as many witnesses and commenters have demanded.

Labor Secretary Thomas E. Perez said in an Aug. 7 letter to Rep. Ann Wagner (R-Mo.) that the department “will move forward towards issuing a Final Rule that balances the input we have received.” Perez said that the DOL has received more than 330,000 comments from various stakeholders, including more than 328,040 individual petition comments, as well as comments from Congress. Wagner has twice introduced legislation that would kill the rule.

Where the DOL did indicate willingness to bend was on issues such as clarifying the line between education and advice, and lengthening the eight-month implementation period.

Lynn D. Dudley, senior vice president for global retirement and compensation policy at the American Benefits Council in Washington, who spoke on a panel on Aug. 13, the final day of the four-day hearing, told Bloomberg BNA the next day that the DOL appeared receptive to brightening the line between education and advice.

She said that such guidance could help in, for example, a situation in which a participant in an employer-sponsored retirement plan contacted a call center about a certain kind of fund, but didn't know the language to describe it. A call center representative could point to a particular fund—say a specific large-cap fund—to determine if that is what the participant is asking about. The DOL might require the representative to say something like “Now by law, I need to tell you, because I've illustrated with one fund, I need to tell you we have this many more like it,' ” to avoid it being considered advice and therefore subject to fiduciary duties, Dudley said.

Workable Rule?

Michael L. Hadley, a partner at Davis & Harman LLP in Washington, also was encouraged by the hearings.

“The government panelists asked good questions and seemed willing to address places where the department, for example, did not intend to cut off helpful investment education,” he said. “I was particularly happy to hear repeated statements that a service provider can discuss and explain a product that the participant or IRA saver owns or is available as an investment. Because the definition of recommendation is so broad, however, getting the education, selling and other carve-outs right is critical.”

Hadley represented two groups at the hearings, the Committee of Annuity Insurers and the SPARK Institute, which represents retirement plan record keepers.
Only time will tell whether the rule is workable, Hadley said in an interview.

“While I very much appreciate their questions and comments, I have to say that until we see what they come up with, we simply do not know if this will be workable for the industry and avoid unintended consequences for Americans saving for retirement,” he said.

On the implementation period, the DOL “clearly recognizes the challenge in front of them,” Dudley said.

“I suspect that they'll try to come up with some hybrid solution that finalizes and then implements delayed implementation,” she said. “I suspect they're going to have to have good-faith” allowances and frequently asked questions, “and illustrations and examples and all of that.”

After the transcript of the hearings is published, the DOL will reopen its public comment period for another two weeks.

Excerpted from a story that ran in Pension & Benefits Daily (8/17/2015).

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