Preston Rutledge: The Beltway Is Buzzing With Retirement Proposals

The word of the moment in Washington, D.C. when it comes to retirement activity is "busy," said Preston Rutledge.

Legislative and regulatory proposals are floating through the halls of Congress and in the offices of agencies such as the Department of Labor, said Rutledge, who served as assistant secretary of labor for the Employee Benefits Security Administration under President Donald Trump.

He appeared as a featured speaker today during the LIMRA Retirement Industry Conference. After departing the DOL, Rutledge founded his own consulting firm, the Rutledge Policy Group.

"It's a very important time to pay attention to what's going on in Washington D.C.," Rutledge said. "We're expecting significant legislative activity this year, and significant regulatory activity, especially from the Department of Labor. And both are well underway."

Three Big Things

The DOL is likely to be focused on three big rules this year, Rutledge said, although the order is less clear. The rules are:

The ESG Rule. The DOL published its final rule on retirement plan investing, “Financial Factors in Selecting Plan Investments,” in November. The final rule said plan fiduciaries should select investments and investment courses of action based solely on consideration of “pecuniary,” or financial, factors. In practice, the rule would curb the use of ESG funds.

Not surprisingly, the Biden DOL announced that it would not enforce the ESG rule. So what's next? The new DOL leadership is likely to craft a rule that overrides the Trump ESG rule and take a more liberal nuance on the issue. Rutledge explained what ESG is a hot issue and it has to do with the $10 trillion held in private employer defined benefit and defined contribution plans.

"Institutional investing based on ESG factors has taken off dramatically in the last couple of years," he said. "I think you can probably see how the concept of investing for the exclusive purpose of providing retirement benefits could bump up against the goal of investing for some other purpose."

Proxy voting. The DOL published its final rule “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” in December. It addressed obligations of plan fiduciaries under the Employee Retirement Income Security Act (ERISA) when voting in connection with plan investments in shares of stock.

The Biden DOL also said it will not be enforcing this rule either. A nonenforcement announcement generally means the status quo is maintained, Rutledge said, and it gives the new administration time to offer amended rules.

"My personal view is that ESG and proxy are top priorities, because they support the new administration's goal of fighting climate change, and promoting diversity and inclusion," Rutledge added. "So I believe those will be perhaps the first regulatory projects we see."

Investment advice rule. The Department of Labor's investment advice rule is another Trump-era rule that the Biden team allowed to take effect on Feb. 16.

The rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" from 1975 to determine what constitutes investment advice.

It replaced the Obama administration fiduciary rule that applied much tougher standards on some annuity sales. Rutledge is wondering if the Biden DOL could be looking to bring some of those fiduciary rule elements back.

"One example might be a return to the 2016 treatment of the prohibited transaction 84-24," Rutledge said. "That was, in 2016, amended and partially revoked to no longer provide relief for transactions relating to indexed annuities and variable annuities. And this is an important exemption for the insurance industry."

The 2016 fiduciary rule created the Best Interest Contract Exemption, or BICE, to cover those indexed and variable annuity sales. The BICE required hefty disclosures and a signed contract with clients.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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