The government announcement seemed innocuous and fairly bland. On Feb. 29, the Department of Labor published one of those arcane agency notices in the Federal Register. The DOL was seeking public comment on a proposed multiyear series of household surveys to learn more about the savings and investment habits of American households.
The justification for the study was that “relatively little is known about how people make planning and financial decisions before and during retirement.”
However, this last comment caught the attention of Congress. Sen. Lamar Alexander, R-Tenn., chair of the Senate committee that oversees the DOL, and Johnny Isakson, R-Ga., who chairs a labor subcommittee, pounced in what is the latest in a series of somewhat testy exchanges between Congress and the DOL.
These days the department's controversial fiduciary rule is top of mind for many legislators on Capitol Hill. Mr. Alexander and Mr. Isakson lost no time in jabbing the DOL for advancing a rule to regulate conflicted investment advice while seeming to concede that it doesn't know enough about how Americans save for retirement.
As reported by InvestmentNews, Sen. Alexander released a statement saying, “The Labor Department's request suggests it is blindly moving forward with policy that has the potential to cut off access to affordable retirement advice for millions of Americans and their families.”
A DOL spokesman responded that the agency was merely “building upon our already robust body of retirement research” and that to say that the study somehow diminished the department's efforts to reduce conflicted investment advice “is simply disingenuous.”
Was this just another attack on the DOL rule? Or was it perhaps a measured response calculated to help build a case for a future court challenge, one that will allege that, by putting the cart before the horse, the Department of Labor's fiduciary rule was arbitrary and capricious?
The arbitrary and capricious standard is not just a casual choice of words, but a strategic basis used for challenging agency rule-making. It was the basis for MetLife's recent lawsuit against the Financial Stability Oversight Council after FSOC designated MetLife as a significantly important financial institution subject to heightened regulatory scrutiny. And it will almost certainly be the principal argument used by DOL rule opponents to overturn the fiduciary rule.
But the DOL retirement study has much deeper implications than its use as a defense against an anticipated lawsuit. The DOL is acutely aware of the series of reverses suffered by the Securities and Exchange Commission in recent years over economic analyses that the U.S. Court of Appeals for the District of Columbia Circuit found flawed. It doesn't want to make the same mistake.
Both the DOL and the SEC have been struggling for several years to get their hands on the data they need to convincingly quantify the economic benefits and costs of new regulatory proposals. When the agencies have solicited investment account data from industry sources to bolster their economic analyses, they have been turned away. The launch of a robust analysis of investor behavior appears to be part of a long-term strategy to bolster their analytical capabilities and ensure they are never without research to justify their actions.
Shortly after the DOL's summer hearings on the fiduciary rule, it released several new research papers on the cost of conflicted advice. Presumably this research will be a part of any court record used to defend the agency against a claim of arbitrary and capricious rule-making.
While this multiyear study may not help the DOL in a lawsuit challenging the fiduciary rule, it should serve the DOL and the SEC well down the road. As the department's announcement of the proposed study noted, “Gaining insight into Americans' decision-making processes and experiences will provide policymakers … with valuable information that can be used to guide future policy and research.”
According to the DOL's request for comments, the research will track retirees and individuals still in the workforce to study savings, investment and drawdown behavior. A cross-sectional analysis will also look at retirement account contributions and investment allocations, along with planning methods, strategies and financial advice.
In addition to gathering data from investors to inform policy making, regulators are continuing their push for industry-provided data to improve compliance oversight. So even as regulators continue to be a favorite target of politicians, the push to get data to inform the regulatory process and improve enforcement is certain to continue.
Blaine F. Aikin is executive chairman of fi360 Inc.