The public feedback on the U.S. Department of Labor's new rule proposal to amend the definition of the term "fiduciary" and require rollover advice be in the best interest of the saver ran the gamut Tuesday, from stakeholders who say the initiative is needed to close coverage gaps and better protect retirement savers, to those who say it will hurt financial professionals, lead to fewer advice options for savers and should be withdrawn entirely.
More than 40 groups and individuals have signed up to testify over two days on the department's proposed Retirement Security Rule and prohibited transaction amendments.
And before lunch on the first day, Employee Benefits Security Administration officials were hearing wildly differing opinions.
Susan K. Neely, president and CEO of the American Council of Life Insurers, expressed myriad concerns with the proposed rule package, in part because it undervalues the role annuities play in providing certainty for middle-income retirees. The proposal is "out of sync with a collective, bipartisan mission to close retirement savings gaps for middle-income savers," Neely testified. "This is about the real lives of people, with real consequences and real impact.
“Our ask is clear: “Remove this proposal in its entirety and focus instead on increasing access and certainty for American workers saving for retirement."
Neely and other witnesses told the Labor Department that recent regulatory developments — like the Securities and Exchange Commission's Regulation Best Interest and the National Association of Insurance Commissioners' conduct standards for insurance agents and insurance companies recommending annuities, which have been adopted in more than 40 states — sufficiently covers the marketplace.
But immediately after Neely concluded, Micah Hauptman, director of investor protection at the Consumer Federation of America, said the five-part test established in 1975 and used to determine when a financial professional is considered an investment advice fiduciary under ERISA allows too many advice providers to skirt fiduciary responsibility.
He added: "The only interest the NAIC model serves is the insurance industry's, which helps to explain the strong endorsement by ACLI. The reality is this proposal largely extends the Reg BI framework where Reg BI doesn't apply, providing uniformity across the regulatory regime."
In its proposed Retirement Security Rule, the department calls for changing its fiduciary definition by removing three prongs in the five-part test. The three prongs at issue require that the person providing the advice does so on a regular basis, the advice is pursuant to a mutual understanding, and that the advice will serve as a primary basis for decision-making.
Instead, the department proposes that a person should be considered an investment advice fiduciary under the ERISA if they provide investment advice or make an investment recommendation to a retirement investor, such as to a plan participant or the plan itself; the advice or recommendation is provided "for a fee or other compensation, direct or indirect"; and if the recommendation is made in at least one of several contexts.
The changes would lead one-time advice, such as rollovers to individual retirement accounts or annuity purchases, to fall under the fiduciary definition if the other parts of the test are met.
Brian Graff, CEO of the American Retirement Association, said he supports the proposal overall, particularly because it extends fiduciary protections to plan sponsors receiving plan investment advice.
"Both SEC Reg BI and the NAIC model rule provide investor protections to individuals on a transactional basis whether or not there is an ongoing advice relationship on a so-called regular basis," Graff noted. "It is simply nonsensical to give an unsophisticated small-business owner who is arguably making a more consequential set of investment decisions on behalf of his or her employees less investor protection than that same small-business owner would likely get with respect to investment advice received on his or her own personal investments."
Other stakeholders — such as Lisa Bleier, managing director and associate general counsel and head of wealth management, retirement and state government relations at the Securities Industry and Financial Markets Association — said the proposal's 60-day comment period, which concludes Jan. 2, is too short. She also urged the department to withdraw the proposal because it's "overbroad, unnecessary and inconsistent with existing federal regulations."
In starting the hearing, Lisa M. Gomez, assistant secretary for employee benefits security, said the proposal aims to ensure that retirement investors receive advice that is prudent, loyal, candid and free from overcharges. She said the proposal is much narrower than the department's 2016 fiduciary rule, which was struck down in federal court in 2018.
Several stakeholders who testified disagreed with that assessment and said the proposal is a rehash of the vacated 2016 rule.
Kent Mason, a partner with the law firm Davis & Harman who has worked for groups that opposed the 2016 rule, said the 2023 proposal, if finalized, is likely to be struck down in court because it runs afoul of the court's 2018 decision.
The hearing will continue Dec. 13.