By Arthur D. Postal
WASHINGTON – Secretary of Labor Thomas E. Perez said his agency has clear authority to impose a fiduciary standard of care with or without participation of the Securities and Exchange Commission.
Perez made the remarks at a Department of Labor (DOL) budget hearing convened by the House Labor, Health and Human Services, Education, and Related Agencies Subcommittee of the House Appropriations Committee.
"The law gives DOL the authority to define a fiduciary under the tax laws, in addition to the Employment Retirement Income Security Act of 1974 (ERISA) definition,” Perez said in answering testimony from Rep. Hal Rogers, R-Ky., who is chairman of the full Appropriations Committee.
Congressional Republicans, SEC Commissioner Daniel M. Gallagher and lawyers retained by the Financial Services Roundtable have contended that only the SEC has the authority to issue rules regarding investment advice.
The DOL and the SEC have held extensive meetings as both agencies worked to craft a revised rule imposing a new standard of care on the sale of investment products into retirement accounts.
That was one of the issues detailed in a letter sent to the Republican leadership of the House Education and Workforce Committee by the Department of Labor (DOL). The letter outlined the collaboration between the two agencies on the proposal produced by the DOL and sent late last month to the Office of Management and Budget (OMB) for its review. DOL Secretary Thomas E. Perez elaborated on the proposal in testimony before two House committees this week.
“Given the extensive technical assistance provided by SEC staff, any delay in moving forward would only hinder efforts to protect consumers from conflicts of interest among brokers, dealers, financial advisors and others whose incentives may be misaligned with investors, potentially leading to deceptive and abusive practices,” the DOL letter states. “It will also delay the opportunity for the public to evaluate our proposal by participating in the comment process.”
An industry lawyer who has devoted his entire career to working on ERISA-related issues discounted the ability of the rule’s opponents to challenge it in court on that basis.
“I don't understand the challenges to the DOL's authority to define fiduciary advice for plans and IRAs,” the lawyer said. “The first did that (define fiduciary advice) in 1975 and it wasn't challenged until this year. That's a 40-year lapse.”
Moreover, the lawyer said, “The authority is under ERISA section 3(21)(A)(ii), and is supported by a residential delegation order from the 1970s.”
The letter was sent to Reps. John Kline, R-Minn., and Phil Roe, R-Tenn., in response to a letter sent to Perez on March 4. Kline is chairman of the House Education and Workforce Committee, and Roe chairman of its Subcommittee on Health, Employment, Labor and Pensions.
In their letter, Kline and Roe requested copies of documents and communications related to the DOL’s consultation with the SEC on redefining the current fiduciary standard.
They said that no DOL rule seeking to revise the current standard of care should be issued until after Congress is satisfied sufficient coordination has occurred.
The SEC’s “technical assistance has helped the DOL draft a proposal that strikes a balance between protecting individuals looking to build their savings and minimizing disruptions to the many good practices and good advice that the financial industry provides today,” said the letter signed by Adri Jayaratne, acting assistant DOL secretary for congressional and intergovernmental affairs.
“Although the DOL and the SEC have different statutory authorities, we both recognize the importance of working together on regulatory issues in which our interests overlap, particularly where action by one agency may affect the community regulated by the other agency,” the letter continued.
In both congressional testimony and in the letter, Perez said he has been meeting with SEC chairman Mary Jo White about the issue.
“Other senior officials and staff from both agencies have held numerous meetings and phone calls throughout the development of the draft proposal,” the letter said. “These collaborative discussions were wide-ranging.”
The letter also said that under the OMB review process, federal agencies with an “equity in the draft proposal will have an opportunity for review and comment.”
The letter said that under the process, “After DOL responds to comments received through OMB’s interagency review process, the proposal will be issued as a notice of proposed rulemaking, along with proposed prohibited transactions exemptions.”
At that time, “any interested party will have the opportunity to provide comment on all aspects of the proposal, including whether and how it accomplishes our goal of protecting individuals looking to build their savings and harmonizing with the regulated communities’ responsibilities under the statutes enforced by the SEC.”
The letter adds that, “I am sure you would agree that all savers, regardless of their income level, deserve access to advice that is in their best interest.”
“It is essential that any rulemaking in which we engage take into account the impact on middle and low-income Americans and on the regulated community, and we look forward to working with you on this and other issues of importance affecting America’s workers,” the letter concluded.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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