Commentary: Flawed Fiduciary Rule Should Be Returned

We are all counting the hours until the Department of Labor releases the final Conflict of Interest Rule.  On March 11, the Office of Management and Budget (OMB) held its final meeting to discuss the rule and any action that may be taken.  Knowing the OMB received the rule on January 28, the speed of their review suggests there will not be substantive change from the proposed rule released last April.  Labor Secretary Thomas Perez has stated publicly that they have taken all input seriously and “have made changes.”  So, we will have to wait until the final rule is released to know for sure what is in it.

The Office of Information and Regulatory Affairs was established in 1980 under the Paperwork Reduction Act.  On their website they tell us OIRA is pronounced "oh-eye-ruh" – which begs the question: If we need help to pronounce an acronym, does it mean that too many acronyms without pronunciation challenges are already taken? If so, it begs the second question: Do we have too many government agencies and subagencies?  But we digress.

OIRA is part of the OMB, an agency within the Executive Office of the President. OIRA reviews draft proposed and final regulations under Executive Order 12866, in addition to other duties.  OIRA’s role in the rulemaking process is to review significant regulations before publication. This is to ensure agency compliance with the principles in Executive Order 12866, which include

• Incorporating public comment;
• Considering alternatives to the rulemaking; and,
• Analyzing both costs and benefits.

A regulatory action is determined to be "significant" when a rule or regulation:

1. Has an annual effect of $100 million or more on the economy;
2. Creates a serious inconsistency or otherwise interferes with an action taken or planned by another agency;
3. Materially alters the budgetary impact of entitlements, grants, user fees or loan programs or the rights and obligations of recipients thereof; or
4. Raises novel legal or policy issues arising out of legal mandates, the president’s priorities or the principles set forth in this executive order.

The DOL fiduciary rule has been determined to be “significant” 

During the course of OIRA’s review of a draft regulation, the OIRA administrator may decide to send a letter to the agency that returns the rule for reconsideration. Such a return may occur if the rule is not compatible with the law, if the quality of the agency’s analysis is inadequate, if the regulation is not justified by the analysis, if the rule is not consistent with the regulatory principles stated in Executive Order 12866 or with the president’s policies and priorities, or if the rule unnecessarily conflicts with other executive branch agency regulations or efforts. Such a return does not necessarily imply that either OIRA or OMB is opposed to the draft rule. The return letter merely explains why OIRA believes that the rulemaking would benefit from further consideration and review by the agency.

Click here for examples of returned letters.

Americans for Annuity Protection has engaged in active outreach to leaders of influence to establish the argument that the DOL’s fiduciary rule should be returned because of the analysis performed by the department is flawed, inconclusive and arbitrary; it is not compatible with the Uniform Security Law or established insurance law, and the law has potential conflict with the Dodd-Frank requirements to the Securities and Exchange Commission (SEC) on reviewing a uniform fiduciary standard.

Sen. Ron Johnson, R-Wis., chairman of the Senate Homeland Security and Governmental Affairs Committee, agrees with us. The committee recently released a report that showed the agency’s analysis was in fact inadequate as well as prejudiced.  The report said that despite public assurances that the Labor Department had collaborated with the SEC, emails reveal discord between the two agencies about the rulemaking. Career, nonpartisan SEC staff identified at least 26 items of concern related to the substantive content of the proposed rule, and the Labor Department declined to fully resolve all of the concerns. The report also showed that after the Labor Department attempted to address the SEC’s stated items of concern, a senior SEC official emphasized to the Labor Department that concerns remained.

The SEC noted that they continue to believe that “commentators are likely to raise concerns that the proposal may result in reduced pricing options, rising costs and limited access to retirement advice, particularly for retail investors.”

In addition, the report notes that the Labor Department rejected the SEC’s recommendation and ignored requirements set in executive orders to quantify the costs and benefits of alternative approaches. A Labor Department employee responded that they “think this would be extraordinarily difficult and would appreciably delay the project for very little return.”

The report also voiced our main concern with the fiduciary rule, which was that the administration was predetermined to regulate the industry and sought evidence to justify its action.  The report notes that “[i]n emails to senior White House advisors, a Labor Department official wrote of the need to find literature and data that can be woven together to demonstrate that there is a market failure and to monetize the potential benefits of fixing it.”  In another email, a Labor Department official discussed “building the case for why the rule is necessary.”

The report and our own Flawed Analysis of the Department of Labor’s Rule, provide a clear case that the OMB has no choice but to return the fiduciary rule on the grounds that the Department did not adequately, without bias or predetermination, do its duty under the rulemaking process.

Americans for Annuity Protection encourages you to contact the OMB directly by filing a comment with the OIRA Administrator on a regulatory action under review.  To do so, email Mabel_E._Echols@omb.eop.gov or call 202-395-6880. If you need help writing your comment email kim@aapnow.com.

Visit www.aapnow.com to comment to the president directly.

The only way to GET ACTION is to TAKE ACTION!

Kim O’Brien is the vice chairman and CEO of Americans for Annuity Protection. She has 35 years of experience in the insurance industry. O’Brien served The National Association for Fixed Annuities (NAFA) for almost 12 years and led the organization to defeat the SEC’s Rule 151A. Contact Kim at kobrien@innfeedback.com. 

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