The Department of Labor better not wait too long to publish its redefinition of "fiduciary," a leading expert on retirement plan rulemaking said today.
The DOL’s spring 2021 Regulatory Agenda confirmed that it will rewrite the definition of fiduciary. Ever since, the Employee Benefits Security Administration has likely been working on the rule update.
It's hard to say for sure, said Brad Campbell, partner at Faegre Drinker law firm, since the DOL does not provide much information on its work. But as the halfway point of President Joe Biden's term nears, the pressure increases to speed along the rulemaking, Campbell noted during a Thursday webinar.
"If they're going to propose a new fiduciary rule and propose changes to the existing exemptions, that really needs to happen in the next several months, if that's going to be a project they have enough time to handle properly," Campbell explained. "Essentially, the first six months of next year is when we need to see a proposal come out if they're going to meet their deadlines."
Otherwise, we could see a Republican administration come in after the 2024 election and reverse all rulemaking to that point.
Virtually the only thing left for the DOL to do with its fiduciary definition rewrite is to essentially make all first-time advice fiduciary, Faegre Drinker analysts agreed during a previous webinar.
The long yo-yoing of rules governing retirement plan sales of financial products began in 2016 with the Obama administration fiduciary rule took effect. A court tossed that rule out in 2018, ruling that the DOL exceeded its authority by creating a new regulatory scheme for the retirement plan space.
The DOL published a set of investment advice rules late in President Donald Trump's administration, and the Biden administration allowed those rules to take effect.
The investment advice 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.
With the latter change, the DOL nudged advisors closer to a blanket fiduciary rule. That has many in the financial services industry concerned about what the Biden DOL could be adding to the mix with its new fiduciary emphasis.
'We'll see what they've learned'
The investment advice rules have been sued twice already, Campbell reminded listeners. The rule took effect on Feb. 1 and two lawsuits were immediately filed, one by the American Securities Association (ASA) in the Middle District of Florida.
A second lawsuit was filed in Texas by the Federation of Americans for Consumer Choice, joined by a number of independent insurance agents and agencies. Both are working their way through the court system, Campbell said.
The rule fights will come down to whether the DOL changed its tactics from the 2016 fiduciary rule approach, he added.
"It's pretty clear Congress did not intend advisors to [individual retirement accounts] to be governed by the Labor Department, but rather to be governed by the respective standards of conduct for their license," he said. "The DOL is really trying to change that. Whether they succeed this time, we'll see.
"They tried in 2016 and their efforts were vacated by the Fifth Circuit. So we'll see what they've learned from that experience."
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.