Election outcome to determine fate of controversial fiduciary reg

Obama win would mean green light for DOL proposal; Romney, red

Oct 30, 2012 @ 3:48 pm

By Mark Schoeff Jr.

DOL, fiduciary regulation
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((Photo: Bloomberg News))

The fate of a proposal that would impose stronger investment advice rules for retirement plans rests on the outcome of next week's election, according to experts who spoke at an industry conference on Tuesday.

The Department of Labor will either get a green light during a second administration of President Barack Obama or it will be told to halt its work if Republican presidential nominee Mitt Romney prevails.

“One thing that is contingent on who wins the White House…is the definition of fiduciary regulation,” Brian Graff, executive director of the American Society of Pension Professionals and Actuaries, told a session of the group's annual conference in National Harbor, Md. “If Gov. Romney wins the White House, in my opinion, that regulation is pretty much dead.”

The Labor Dept. first proposed a rule to expand significantly the fiduciary designation for advisers to retirement plans in October 2010. It withdrew the rule amid fierce financial industry opposition about a year later.

The agency initially said it would issue a revised rule early this year but the timeline slipped until after the election. Most observers now expect a rule in early 2013 if Mr. Obama wins.

The financial industry and bipartisan members of Congress opposed the original rule because they said it would, for the first time, impose retirement-law fiduciary standards on brokers who sell individual retirement accounts, potentially raising their costs and forcing them out of the market. Other concerns center on potential changes the rule would bring to rollovers and to the sale of 401(k) plans.

Labor Dept. officials are pursuing the rule, they say, to shield workers and retirees from conflicted investment advice as they provide for their own nest egg through 401(k)s and IRAs.

The point person on the rule, Assistant Labor Secretary Phyllis Borzi, was not able to attend the ASPPA conference on Tuesday because of the government shutdown caused by Hurricane Sandy.

Observers are confident that Ms. Borzi will press ahead with the rule if Mr. Obama wins the election and she keeps her job.

“From the perspective of a Democratic administration, their focus is on trying to protect participants and they'll put a greater burden on service providers to do that,” C. Frederick Reish, a partner at Drinker Biddle & Reath LLP, said in an interview after speaking at the ASPPA event. “A Republican administration also is interested in protecting participants, but they're much more comfortable that the private benefit marketplace can sort that stuff out. As a result, they're going to rely more on disclosure than fiduciary status.”

Most of the 1,100 advisers, actuaries and pension experts who attended the ASPPA conference will be watching the election results with the DOL fiduciary rule in mind.

“It would have a potential major impact on the ability to work with participants on rollovers, a huge impact on IRAs and a huge impact on the industry generally,” Mr. Graff said.

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