50 House Reps Push Back On DOL Fiduciary Proposal

A group of 50 U.S. representatives have joined dissenters weighing in on the Department of Labor’s retirement security rule proposed in October 2023.

Representatives French Hill, R-Arkansas, and David Scott, D-Georgia, led the composition of a bipartisan letter signed by 50 representatives—five of which are Democrats—and addressed to acting Secretary of Labor Julie Su and Assistant Secretary Lisa Gomez, head of the Employee Benefits Security Administration.

In the letter, the lawmakers argued the proposed rule would ultimately harm lower- and middle-income workers by forcing financial professionals who currently operate as insurance agents or registered representatives to act as investment advisers—thus increasing their fees. The policymakers compared the proposed rule changes to a similar effort in 2016, which was ultimately struck down by a federal appeals court.

“DOL’s past efforts to expand these rules, which federal courts have repeatedly rejected, dealt a devastating blow to millions of American workers and retirees by impairing their ability to obtain much-needed affordable financial professional help to prepare for and achieve a secure and dignified retirement,” the policymakers wrote. “We urge DOL to cease its efforts to adopt this proposal in order to prevent needlessly inflicting harm on millions of retirement savers across the country.”

The retirement security proposal was, upon its release, championed by President Joe Biden in part for doing away with “junk fees” linked to financial offerings, including retirement income annuities. The administration and the DOL also argued that the proposed changes would protect consumers from conflicts of interest when receiving one-time retirement plan rollover advice and would protect small businesses and their employees from receiving conflicted guidance on retirement plan investment menus.

The proposal would do away with the traditional five-part test for determining if an adviser is acting in a fiduciary capacity and replace it with a three-part test in which satisfying any one of three conditions would make the adviser a fiduciary. That change, if implemented, would effectively create a stricter regulatory environment for financial professionals advising or selling investment products related to retirement savings.

The DOL did not immediately respond to a request for comment on the letter.

The response to the rule from advocacy groups, companies and the advisement community has been mixed, with thousands of public comments pouring in before the comment period’s January 2 deadline. Responses ranged from outright rejection similar to the House letter to support for parts of the amendment to full support of the proposals.

Withdrawal Request

In their letter, the representatives urged for the complete withdrawal of the rule proposal and accompanying amendments to two prohibited transaction exemptions—2020-02 and 84-24—which would bring annuity advice into fiduciary standards.

“[T]he proposal, if adopted, could cause a large number of financial professionals, who currently serve a broad range of customers, to switch to providing service as investment advisers, rather than as insurance agents or registered representatives of a broker-dealer,” the policymakers wrote. “Investment advisers charge ongoing advisory fees and impose account minimums that low- and moderate-income workers and retirees cannot afford, causing them to lose access to any financial professional.”

The representatives went on to cite research done in 2017 by the U.S. Chamber of Commerce lobbyist group and on behalf of the Hispanic Leadership Fund showing that the earlier fiduciary proposal would have reduced retirement savings among smaller retirement accounts, as well as among Black and Latino retirement account holders.

Enough Regulation

The policymakers also argued that, since 2016, regulators at the federal and state levels have implemented “significant and workable” regulations to address conflicts of interest in the retirement advice and products in discussion.

The letter cited the Securities and Exchange Commission’s Regulation Best Interest rule, which requires broker/dealers and registered representatives to always act in their client’s best interest. It also cited the 40 states that have enacted a National Association of Insurance Commissioners model regulation requiring insurance producers to follow Reg BI standards when discussing the sale of products such as annuities.

The lawmakers went on to argue that the DOL is ignoring prior federal court rulings and extending its reach beyond the requirements of the Employee Retirement Income Security Act.

House members wrote that the rule fails to recognize that, under ERISA, there is a difference in obligations between “(i) investment advisers who are paid fees for advice, and who have long been considered fiduciaries, and (ii) stockbrokers and insurance agents, who generally assumed no such status in selling products to their clients.” The policymakers also wrote that ERISA and the courts do not extend fiduciary status to those making rollover recommendations.

The group ended by noting that the DOL should focus on the already extensive retirement legislation passed in 2019, the Setting Every Community for Retirement Enhancement Act, and in 2022, the SECURE 2.0 Act.

“These bipartisan legislative measures provide clear and appropriate opportunities for DOL to help America’s workers and retirees have opportunities to build their retirement nest eggs and enjoy a financially secure retirement,” the policymakers wrote.