Yes, the fiduciary rule is probably history, Capital Group analysts say

Rep. Lori Chavez-DeRemer, nominated by President-elect Donald Trump to head the Department of Labor, is being viewed with skepticism by a financial services industry that wants efforts to extend fiduciary duty to go away for good.

Chavez-DeRemer, R-Oregon, has a sketchy history with the issue. As member of the House Committee on Education and the Workforce, she was the only Republican to vote against a Congressional Review Act resolution to strike down the fiduciary rule.

But more than likely, the DOL will not pursue the matter, a panel agreed this week.

“It's a little hard to believe she's going to be passionate about it,” said Jason Bortz, a senior vice president and senior counsel at Capital Group, the investment manager to the American Funds. “But it kind of suggests to me that they will let the litigation roll forward, at least in the Fifth Circuit Court of Appeals, where it is most watchers give that rule very small odds of surviving.”

He spoke this week during a Capital Group webinar titled, “Legislative and regulatory changes for the 401(k) industry.” Make no mistake about it, the panel agreed, the Trump win over President Joe Biden is “a very welcome development for the investment industry,” as Bortz put it.

The panel repeatedly stressed an apolitical stance with their analysis.

A fiduciary rule repeat

The state of the fiduciary rule – officially known as the Retirement Security Rule in its present version – is remarkably similar to when Trump first took office in 2016, Bortz noted. That is, tied up in court.

Then, the Obama administration fiduciary rule was headed to the Court of Appeals for the Fifth Circuit, which vacated the rule in 2018. Two rules and eight years later and it’s the RSR currently in federal court.

The two cases against the RSR are: The Federation of Americans for Consumer Choice filed its lawsuit May 2 in the Eastern District, which was heard by Judge Jeremy Kernodle. The group of trade associations followed with its lawsuit in the Northern District.

Both cases have been stayed. It’s not just a matter of letting the RSR die, Bortz said.

“If the Biden fiduciary rule is revoked, I think the Trump Department of Labor is going to have to think about whether to say anything in this space,” he said. “Because … without any guidance, rollover recommendations would be non-fiduciary in the ordinary course, and I'm not totally sure they're going to be willing to have that be the rule.”

Any more SECURE?

Among other issues that could resurface in a Republican-powered Congress, the SECURE Act is a good bet, the panel agreed. For starters, a “technical corrections bill” to fix some minor things in SECURE 2.0 is expected to easily pass Congress, Bortz said.

“I wouldn't get too hot and bothered about that,” he said. “It's going to happen eventually, and it will be retroactive.”

The original SECURE Act of 2019 was signed into law by Trump, and its successor, SECURE 2.0, passed in 2023. Together, the laws include dozens of changes, taking effect on staggered timelines, to remove the barriers to annuity sales in retirement plans and make it easier for Americans to save for retirement.

Auto-enrollment is the next big SECURE feature to become law. Starting in 2025, all new 401(k) and 403(b) retirement plans established after Dec. 29, 2022, must include an auto-enrollment feature, meaning eligible employees will be automatically enrolled in the plan at a minimum contribution rate, usually around 3%, unless they choose to opt out.

“It's kind of a remarkable thing,” Bortz said. “You may feel like SECURE 2.0 is old news, but it's actually kind of continuing news.”

The industry has visions of SECURE 3.0, a bill package that would go further to strengthen retirement savings. But Bortz does not expect any momentum for it anytime soon.

Some ideas being discussed include making it easier and faster to do rollovers out of retirement plans, he explained. Also, how to extend retirement savings to independent contractors, such as Uber drivers.

“it's very much in the ideation phase,” Bortz stressed. “It's certainly not going to happen this year, and certainly not going to happen next year. It's going to be a while.”

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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.