Trade groups express concern about regulatory process on DOL fiduciary rule

A group of 11 industry trade associations sent a letter to the U.S. Department of Labor and others expressing concerns about the regulatory process with regard to the Department of Labor’s proposed “Retirement Security Rule: Definition of an Investment Advice Fiduciary.”

The letter was sent to Secretary of Labor Julie Su, White Office of Management and Budget Director Shalanda Young, and Office of Information and Regulatory Affairs Administrator Richard Revesz.

The organizations said they are concerned about "significant rulemaking flaws in the regulatory process" and urged the government groups to "stand up for the integrity of the regulatory process and continue the public input process, rather than finalize the fiduciary rule now."

"The ramifications of this proposed rulemaking are extensive, making the need for public
comment and careful review critical," the letter said. "In the view of many experts, DOL’s 2016 rule had devastating effects on low- and middle-income individuals. We anticipate similar impacts should the proposal go final with little change."

The letter cited the following:

• The national accounting firm Deloitte studied 21 financial institutions that represented
43% of U.S. financial advisors and 27% of the retirement savings assets in the market.
The study found that as of the DOL rule’s first applicability date on June 9, 2017, 53% of
study participants reported limiting or eliminating access to brokerage guidance for
retirement accounts, which the firms estimated as impacting 10.2 million accounts and
$900 billion in assets under management.

• In 2021, the Hispanic Leadership Fund released a study showing the devastating effects
of reviving the 2016 fiduciary rule, as would be done by the 2023 proposal. The 2023
proposal would have the most adverse effects on Blacks and Hispanics – reducing their
projected accumulated IRA savings by approximately 20 percent over 10 years – contributing to an approximately 20 percent increase in the wealth gap attributable to IRAs for these individuals.

"It is paramount that the rulemaking process include careful scrutiny and a robust public policy
dialogue," the letter sent on to state. "We have grave concerns regarding DOL and the Office of Information and Regulatory Affairs’ extremely short review of a major rule that displayed little interest in public input and collaborative discourse."

DOL’s process raises questions regarding their interest in public input, the letter stated. It cited the following examples:

• President Biden publicly supported finalizing the proposal in its original form prior
  to the comment period. In his formal remarks announcing the fiduciary proposal on
  October 31, 2023, the President made it very clear that he wanted the proposal adopted as
  proposed, stating: “If this rule is finalized as proposed, it’s going to protect workers, and
  it’s going to save for — that are saving for their retirements.”
• DOL rushed the process to finalize the proposal.
• Historically short comment period. The comment period for the proposal was
  60 days, compared to 119 days for the 2010 version of the fiduciary proposal and
  105 days for the 2015 fiduciary proposal. Despite the rulemaking period’s
  inclusion of several significant holidays, DOL summarily dismissed stakeholders’
  requests for an extended comment period.
  - Unprecedented hearing in the middle of the comment period. For perhaps the
  first time in history, DOL held a hearing in the middle of the comment period,
  rather than waiting for commenters to finish their review of the proposal. As such,
  stakeholders were prohibited from addressing issues raised in many other
  stakeholder comment letters in their testimony. An extensive study of substantive
  retirement rules still in effect concludes that over the past 15 years, DOL spent the
  shortest time by far finalizing the current fiduciary rule – 66 days – with the next
  shortest time being 110 days.
  - Democrats’ concerns about process ignored. On December 20, 2023, Democrat
  Senators Tester, Peters, Coons, Cardin, Sinema, Hassan, Hickenlooper, and
  Manchin wrote as follows, all of which was ignored by DOL: “[W]e believe it is
  critically important to significantly extend the comment period . . . In fact,
  especially because of the history of failed DOL rulemakings on this subject, and
  the concerns expressed during those processes by retirement savings providers,
  stakeholders, Members of Congress, and ultimately our court system, it is critical
  that the public process for any final rule provide enough time and reflect input
  received during the comment period. . . . [W]e are concerned that you are rushing
  this project and the people that will be hurt are the ones you are trying to help the
  most.” (emphasis added)
  - Moving too fast to allow for a study of the effects of the proposal. In the
  process of moving too quickly to adopt a rule that will have far-reaching effects on retirement savers, both the DOL and now OIRA have missed the opportunity
  to conduct the detailed research that is needed to understand both the intended and
  perhaps unintended effects of the rule on small balance savers, older savers, new
  savers, and savers from communities that have experienced and continue to
  experience wealth and retirement savings gaps.
  - DOL’s process appear driven solely by political deadlines, not policy. The
  motivation for this rushed process appears to be driven by a May 2024 deadline to
  ensure that the final rule cannot be subject to a Congressional Review Act vote in
  2025. In other words, DOL’s efforts are not driven by a desire to get this rule
  right, but rather by political deadlines. DOL’s rush to judgment is further
  evidenced by its inadequate study of the effects of the proposal, as referenced
  above and reinforced by a 2024 study:
  ▪ An Oxford Economics Study revealed that “the literature the DOL uses to
  support its potential benefits of the rule all rest on data from before the
  effective date of Reg BI.”
  ▪ The same study found that “[o]verall, our estimate of one-time upfront
  costs of $238 million is over six times that of the DOL’s estimates of $37
  million, and our ongoing annual cost estimate of $2,535 million is almost
  11 times that of the DOL’s $216 million.”

The OIRA process has been equally dismissive of public input, the letter said.

• On October 22, 2010, DOL published a proposed fiduciary rule –
  approved by OIRA – that was so lacking in basis that DOL had to publicly
  announce in September 2011 that it would not be finalized.
  ▪ On April 8, 2016, DOL published a final fiduciary rule – approved by
  OIRA – that (1) was invalidated by the Fifth Circuit Court of Appeals in
  20186 as flatly inconsistent with the law, and (2) had well-documented
  devastating effects on low- and middle-income individuals, as noted
  above.
  ▪ On December 18, 2020, DOL completely rewrote – with OIRA approval –
  the definition of a fiduciary in a preamble to a new prohibited transaction
  exemption, and the core of that new definition has been invalidated by
  one court, rejected by another court, and is expected to be invalidated by a
  third court.

OIRA showed a clear disregard for public input by the timing of their
approval of the final rule on April 10, mere hours after some meetings and
before other scheduled meetings, or what OIRA termed “listening sessions," the letter said.

▪ The approval was issued mere hours after OIRA’s separate meetings with
the Financial Services Institute, the American Bankers Association, and
the National Association of Insurance & Financial Advisors.
▪ The approval was issued before a scheduled meeting on April 12 with the
Alternative & Direct Investment Securities Association, whose meeting
was canceled without notice.
▪ The approval was issued before a scheduled meeting on April 15 with a
coalition run by Davis & Harman, whose meeting was also canceled
without notice.
▪ The approval was issued a mere day after meetings with Finseca, the US
Chamber of Commerce, and the American Council of Life Insurers.
▪ The approval was issued a mere two days after meetings with the
Investment Company Institute and the Insured Retirement Institute
▪ The approval was issued a mere five days after meetings with SIFMA and
the National Association for Fixed Annuities.

"For the sake of the regulatory process' integrity and to prevent and protect harm from accruing to millions of America's workers and retirees, we ask you to reconsider this rush to judgment and
allow for further input and constructive dialogue before this rule is finalized. The consequences
of this rule are too significant to be overlooked," the letter concluded.

The following organizations signed the letter:

Alternative & Direct Investment Securities Association
American Council of Life Insurers
American Securities Association
Committee of Annuity Insurers
Davis & Harman on behalf of the Broker Dealer Coordination Group
Financial Services Institute
Finseca
Indexed Annuity Leadership Council
Insured Retirement Institute
National Association for Fixed Annuities
National Association of Insurance & Financial Advisors