Opponents of the Department of Labor’s fiduciary rule may be surprised to find the final version far less objectionable than they thought, according to a former DOL acting secretary.
“The most important thing DOL will do to help the industry with implementation is to scale back the rule,” said former DOL Deputy Secretary Seth D. Harris. “DOL has been listening to the concerns from Congress and the industry about the administrative burden.”
Harris was the deputy secretary when the department initially proposed a rule in 2011 and was acting secretary in 2013 as the current rule was developed. He is now counsel with the public policy and regulation practice at Dentons, a global law firm.
The proposed version of the rule, released in April 2015, is aimed at agents and advisors who recommend investments in ERISA-covered accounts. The rule requires advisors who work with individual investors to comply with a fiduciary standard.
Harris said recently that DOL acknowledges the final fiduciary regulation would warrant a significant transformation of a long-standing business model in the insurance industry. The department’s senior leaders also recognize the industry would need to put into place new systems and procedures to comply with the rule, which will take time.
OMB May Take Extra Time
On Jan. 28, DOL sent the rule to the President’s Office of Management and Budget (OMB) for a required review before it is released. Many observers are expecting the rule to be released by 60 days, which would place it in late March. But sources close to the process say that guess may be off by as much as two months.
Although DOL has not revealed a date when it will publish the final rule, OMB is likely to take longer than the permitted 90 days to evaluate it, according to a source. OMB can use the authority to extend the 90-day review period to a total of 120 days, as granted by a 1993 executive order.
That would place the release in late May.
OMB will use the extra 30 days because of the importance of the regulation and the number of parties participating in its appraisal, the source said. During the review period, the Office of Information and Regulatory Affairs (OIRA) division of OMB consults with DOL and other White House entities such as at the Council of Economic Advisors, National Economic Council, and Domestic Policy Council.
These parties analyze possible impacts of the regulation and negotiate proposed changes before the rule is finalized. OIRA will adjudicate the comments from the other White House entities before approving the final regulation.
Once DOL publishes the final regulation in the Federal Register, the rule-making process transitions to a phase of interpretation, guidance and compliance. The Department will publish at least two accompanying pieces with the rule: a preamble and compliance instructions.
The preamble will likely address the main points gleaned from the public comments submitted to the agency, including objections to the regulation. The compliance instruction is only the first type of document DOL will issue to assist the industry. Then, the real work of implementation begins.
Julie M. Anderson served as an executive in the Obama Administration and at IBM. She now leads AG Strategy Group, which provides strategy consulting and management training services to government agencies and federal contracting companies. Julie may be contacted at [email protected]