Hundreds of retirement plan advisers are shifting their game plan as they descend on Capitol Hill this week. Instead of urging lawmakers to kill a Labor Department rule that would raise advice standards for 401(k)s and IRAs, they've accepted the rule will become a reality and instead seek to modify it to address their concerns.
“We're not talking about [the DOL rule],” Brian Graff, executive director of the American Society of Pension Professionals and Actuaries, said Sunday at the organization's annual conference at National Harbor, Md. “It's not a productive use of time. We need to improve the rule. We're not trying to block it.”
Mr. Graff also threw cold water on the industry's likely tactic of halting the rule through lawsuits after it is finalized. He said a judge granting an injunction is “a long shot.”
“Even if the industry theoretically has some merits in their arguments — and there certainly are some points I think they do — the likelihood they're going to be able to succeed in the courts swiftly is very remote,” Mr. Graff said. “You're talking about years in the court system, potentially going to the Supreme Court. In the meantime, we've got to comply with these rules.”
The group also is “basically begging [DOL] for a much longer transition period” to implement the rule, Mr. Graff said, because it poses substantial administrative challenges for advisers.
One adjustment ASPPA is seeking to the rule would make “level-to-level” compensation OK. If plan advisers are receiving the same pay for working with a 401(k) plan no matter what investment products are included in it, they can roll over plan participants to an individual retirement account without violating the DOL rule, as long as their pay is also level in the IRA. It would not matter that total fees are steeper in the IRA than the 401(k) due to a higher level of service.
“We have been constructively engaging with the department,” Mr. Graff said. “We're optimistic [DOL] will accommodate us in some way.”
It is inevitable that the rule, which was released in April, will be finalized sometime during the first quarter of next year, according to Mr. Graff. That would put it in place before the Obama administration leaves office.
The rule has strong backing from the White House, which says it is necessary to curb incentives for brokers to put clients into high-fee products that erode retirement savings.
Most of the financial industry is trying to stop the rule, which it says would significantly increase liability risks and regulatory costs for brokers and make it sharply more expensive to give and receive investment advice.
The DOL will likely revise the rule to address concerns raised by Capitol Hill Democrats, Mr. Graff said, but it will not withdraw or re-propose it.
Congressional efforts to stop the rule — either through the appropriations process or by legislation — are not likely to work either because President Barack Obama could veto them.
The approximately 400 ASPPA members who go to Capitol Hill on Tuesday for meetings with lawmakers will instead concentrate on concerns they have about the trend toward state-run retirement plans.
In a panel on Sunday, ASPPA officials expressed worries that a pending DOL guidance regarding state-run retirement plans would give states more lenient rules on automatic IRAs and multiemployer plans than those that govern private-sector providers. The “uneven playing field” would give a competitive advantage to the states, according to the officials.