If insurance producers were breathing a sigh of relief that the Department of Labor settled things with accepting the Trump-era financial advice rule and issuing new guidance, they might want to hold their breath for a bit longer, maybe a lot longer.
That was a dash of the bad news from Faegre Drinker’s quarterly Inside the Beltway discussion on Thursday. A bit of good news was how quickly the package known as SECURE 2.0 is coming together, likely heading for a full House vote this summer.
Bradford Campbell, Faegre Drinker partner and former assistant secretary of the Employee Benefits Security Administration, said the DOL revealed some far-reaching ambitions along with its recent guidance focusing on the department’s newest prohibited transaction exemption, 2020-02, which primarily affects broker-dealers and registered investment advisors.
With the newest guidance, the DOL expanded the definition of fiduciary under the original ERISA regulation by interpretation rather than changing the original rule.
“This expansion of the definition of fiduciary is being accomplished by guidance by the DOL saying we're not changing the words of the old rule, we've just decided they mean something different than they used to,” Campbell said. “The effect of that, as of Feb. 16, is that if you're recommending a rollover, you're now in most cases going to be providing ERISA fiduciary advice, whereas in the past the DOL’s official position was most rollovers were not.”
Campbell said that represents a big change for everybody across the financial spectrum.
“Regardless of the license you have, or what standard you advise under in your normal career as a financial professional, ERISA would now apply to that,” Campbell said. “And the effects of that are pretty far reaching.”
At the moment, independent insurance agents can rely on PTE 84-24 when it comes to retirement money. But that PTE might not be around when the DOL finishes its latest round of revisions.
“DOL announced along with the guidance that they were going to do some new things long term,” Campbell said. “One, they're going to take another look at the underlying 1975 fiduciary regulation, and they may well change that.”
The department has been updating and interpreting the original regulation in its rule-making and guidance, but the next step might be the original regulation itself.
“The DOL may go beyond its interpretation of the original regulation, which they're currently using, to a new regulation, ala 2016 when the Obama administration fundamentally changed the rule itself, which was later vacated by the courts,” Campbell said.
The 2016 rule amended who is a fiduciary under the 1975 regulation.
'A Lot Of Discussion And Debate'
Another DOL ambition in the long term is to review all the exemptions, including PTE 84-24, with an eye toward revoking or revising them, Campbell said.
“For a variety of financial professionals who are using exemptions other than the new 2020-02, those may or may not be available,” Campbell said. “And there's probably going to be a lot of discussion and debate about how they should be modified and regulatory activity to that effect down the road.”
Although PTE 2020-02 was adopted in the last days of the Trump presidency, the Biden administration let it stand, allowing it to go into effect on Feb. 16. Then the DOL paused enforcement until Dec. 20.
But even as financial professionals get their compliance in line with PTE 2020-02, that might even change after the enforcement deadline.
“What we have overall is a situation where starting Feb. 16, much more of what you were recommending, especially in rollovers, was now subject to ERISA and you have until Dec. 20 to put in place compliance with an exemption,” Campbell said. “And the exemption you're complying with on Dec. 20 may fundamentally change after Dec. 20 through a regulatory process.”
The latest DOL moves ensures that the drama that has swirled around fiduciary regulations since the Bush administration will continue.
“I'm somewhat pessimistic about the future and things under the new fiduciary issues initiatives undertaken by DOL because it's creating a short-term compliance issue,” Campbell said. “And it's then about to replace it immediately after that with a long-term compliance issue, which means a lot of change and a lot of paying attention to fine details for all of us for the next 18 months to a year.”
Good News On SECURE 2.0
Campbell was, however, optimistic about the Securing A Strong Retirement Act, also known as SECURE 2.0.
Earlier this month, the bill unanimously passed the House Ways and Means Committee, showing rare bipartisan agreement. He said the bill was substantial with “valuable changes” to the retirement plan arena. The same committee produced what became the far-reaching SECURE Act in 2019.
SECURE 2.0 includes 45 provisions, such as auto-enrolling and auto-escalating in retirement plans, expanding lifetime income options, allowing employers to contribute to a 401(k), 403(b) or SIMPLE IRA to match an employee’s student loan payments and raising the required minimum distribution age from 72 to 75.
The newest bill could go to the full house during the summer as the Senate works on its own retirement proposals, including the latest from Sens. Rob Portman, R-Ohio, and Ben Cardin, D-Md. That bill would “eliminate barriers that businesses and their owners currently face in establishing a new S-ESOP or expanding the employee-ownership stake in an S corporation.” That bill could be wrapped into a Senate version of SECURE 2.0.
Campbell said he was optimistic about SECURE 2.0’s chances, mostly.
“I think most folks looking at the bill are pretty optimistic that some form of the SECURE Act, whether it's called that or something else, will pass this year,” Campbell said. “What's not clear is whether it all goes as a standalone, how long that takes or whether it's incorporated in other bills. As you all know, there's a much bigger set of tax issues under consideration from the Biden administration.”
Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected]