DOL Takes Heat Over Its Investment Advice Rule

By John Hilton

The Department of Labor was urged this morning to create a safe harbor to protect plan sponsors from having to "scrutinize" and "second guess" rollover communications.

The suggestion came from Jason M. Levy, special counsel for employee benefits and executive compensation at the law firm Covington & Burling, during a virtual public hearing on the DOL's investment advice rule proposal.

Under Covington’s proposed safe harbor, employer plan fiduciaries could satisfy their obligations under ERISA by having their service providers provide an annual certification to the plan outlining whether or not it is providing fiduciary plan advice.

"The certification safe harbor ensures that plan resources will not be needlessly diverted to policing legal positions of service providers," Levy said.

If the liability questions are unresolved in the minds of employer plan fiduciaries, they are likely to abandon plan offerings altogether, he added.

Louis Harvey, president and CEO of Dalbar, told DOL officials that rollover transactions stand apart from investment decisions and should not be regulated the same. Based in Massachusetts, Dalbar is a firm that evaluates, compares and ranks financial services companies.

"Rollover decisions are primarily driven by spending choices, personal obligations, estate considerations and longevity risk," the Dalbar comment letter explained. "Another fundamental difference that is not accounted for in the regulation is reversibility. Damages arising from imprudent investment recommendations can generally be limited by selling what was bought or buying back that which was sold."

Rollovers are expected to dramatically increase in the years ahead, Harvey told the DOL this morning. The correct regulatory regime is crucial to properly protect retirement savers, he added.

“Self policing is an effective tool for the well-intentioned members of the community," he said. "It is, however, entirely useless for opportunists. We must make it difficult for opportunists to escape the regulatory framework."

Lengthy List Of Speakers

Today's public hearing is expected to last much of the day. Levy and Harvey spoke during the first panel of speakers, all addressing rollover advice implications of the rule proposal.

The rule would replace the controversial fiduciary rule published by the Obama administration. The Trump replacement has two main parts: a new 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.

The DOL received 106 comments by its Aug. 6 deadline. Criticism over the tight 30-day comment window prompted the department to schedule the public hearing. The hearing will continue Friday if needed.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.