Compliance March 22, 2021

Senate Confirms Marty Walsh as Labor Secretary

The full Senate voted Monday evening to approve the nomination of Boston Mayor Marty Walsh to lead the U.S. Department of Labor at critical time for the U.S. economy and its workforce.

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The U.S. Senate voted Monday evening to approve the nomination of Marty Walsh to the role of labor secretary, nearly two months after his confirmation hearing.

The affirmative vote comes at a critical time for the U.S. Department of Labor (DOL), which is expected to play a big role in the Biden administration’s effort to help the U.S. economy bounce back from the ongoing coronavirus crisis. Beyond issues related to the surge in unemployment and the outsized impact the COVID-19 pandemic has had on small businesses and communities of color, the DOL is also engaged in other key regulatory projects. Notable among these is the restatement of the fiduciary duty under the Employee Retirement Income Security Act (ERISA) and the implementation of provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

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Though Walsh’s confirmation hearing presented a wealth of interesting and informative commentary from the nominee and the senators on the committee, retirement industry stakeholders might have been a bit disappointed in the end. Relatively little of the hearing’s airtime, either on the part of Walsh or the questioning senators, was dedicated to retirement security issues. Given Walsh’s deep ties to organized labor, the nominee and senators paid some attention to the multiemployer union pension funding crisis, but much more time was spent on issues such as the federal minimum wage, systemic economic inequality and the broader recovery from the pandemic.

During his nomination hearing, Walsh shared telling details about his own life and work experience, recalling how, at the age of 7, he was diagnosed with lymphoma.

“With great treatment at Boston Children’s Hospital and the Dana-Farber Cancer Institute, I recovered, and I’ve had an amazing experience on my life’s journey,” Walsh said. “I followed my father into his profession in my 20s, and because of the same union-provided benefits that saved my life as a child, I went into alcohol recovery. I share this story because I know first-hand how important mental health and substance abuse support is for workers. These are not just policies to me. I’ve lived them.”

Walsh’s subsequent answers to senators’ questions repeatedly highlighted his belief in the importance of implementing innovative policies to help underserved workers, especially minorities, veterans and LGBTQ individuals. 

Compliance March 22, 2021

From Ohio to Virginia, More States Look to Update Annuity Standards

The states’ embrace of the NAIC annuity transaction suitability framework comes as experts are raising broader questions about the durability of the SEC’s Regulation Best Interest, on which the insurance standards are partly based.

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Virginia is the latest state to consider adopting a version of the model annuity transaction suitability framework finalized early last year by the National Association of Insurance Commissioners (NAIC).

Technically, the Virginia State Corporation Commission (SCC) has proposed amending Chapter 45 of Title 14 of the Virginia Administrative Code, specifically by revising the rules set out in the sections labeled “14 VAC 5-45-10” through “14 VAC 5-45-47.”

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These rules establish the standards that an insurance agent or insurer must follow when recommending or selling an annuity to consumers in the state, and the proposed amendments generally align with the enhanced suitability in annuity transactions model regulation approved by the NAIC.

By way of background, the NAIC is the United States’ main standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, Washington, D.C., and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews and otherwise coordinate their regulatory oversight.

Supporters of the updated NAIC best interest framework include the Insured Retirement Institute (IRI), which says the revised suitability model is appropriately consistent with the U.S. Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI). In fact, the NAIC model includes language that directly provides a regulatory safe harbor for all insurance producers who are subject to, and actually comply with, equivalent or greater conduct standards, including Reg BI or the Investment Advisers Act. Supporters say this approach helps to avoid duplicative compliance requirements for those producers who already comply with rigorous standards.

In a comment letter on the Virginia proposal, the IRI encourages the state to follow the example of some of its peers and provide a six-month implementation period that is not contained in the NAIC’s model.

“We have encountered significant confusion in other states that have adopted the latest version of the NAIC model with respect to the timeline for completion of the training required thereunder,” the IRI’s letter states. “Based on our extensive involvement in the development of these revisions at the NAIC and the adoption of the revisions in other states, we believe the following accurately represents the NAIC’s intent. First, agents who obtain their license on or after the effective date (i.e., six months after adoption) must complete the required training before selling annuities. And second, agents who are already licensed to sell annuities on the effective date should be given a six-month grace period after the effective date to complete the required training.”

The IRI letter calls for several other technical adjustments which are echoed in comments submitted by the American Council of Life Insurers. Both organizations say they look forward to working with Virginia policymakers on these matters.

In embracing the NAIC framework, Virginia joins a growing list of states that have done the same, including Ohio, Idaho, Iowa, Arkansas, and Arizona. In Idaho, the recent move to embrace the NAIC framework was mandated by a law passed in the state House and signed by the governor. Notably, other states have taken steps to create frameworks that are more restrictive than the NAIC model, including New York.

One unique case has played out in Kentucky, where the Kentucky Insurance Department decided in February to not proceed with the promulgation of a revised suitability model after various stakeholders raised concerns about the removal of “best interest” language in the proposed regulation.

At this point, the Kentucky Insurance Department says it will meet with all interested parties to allow for a robust discussion on the issues and to see how the topic evolves as the NAIC model is adopted in other states. Kentucky had initially proposed a regulation that aligned with the NAIC’s model, but the proposal was later amended to remove the best interest language, a move which the IRI and others protested.

One matter that could potentially complicate the widening implementation and enforcement of the NAIC’s suitability framework is the fact that the Biden administration could choose to modify, update or even rescind Reg BI, though sources say this is far from a given. While this would not entirely derail what the states have done, given that the safe harbors often also cite the Investment Advisers Act or the Department of Labor (DOL) fiduciary standards, the elimination of Reg BI could cause ambiguity in the different state-based conflict of interest rules. The outcomes of various pending lawsuits challenging aspects of the DOL’s fiduciary rule framework could also complicate matters.

What is clear at this juncture is that Biden’s nominee to head the SEC, Gary Gensler, has pledged to make consumer protection a top priority if he is confirmed to the role.

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