Financial planning issues wrapped into government spending bill?

Two issues of broad concern to advisers — fiduciary duty and pension cuts — might make their way into the appropriations bill Congress is expected to pass this week

Dec 8, 2014 @ 2:07 pm

By Darla Mercado and Mark Schoeff Jr.

Members of Congress are considering adding provisions to the government spending bill that would impact at least two crucial issues for financial advisers: the DOL's action on fiduciary duty and the right of pensions to cut benefits.

On Monday, lawmakers were working on an appropriations measure that would fund government operations into 2015. The temporary funding measure now in place expires Thursday.

Part of the talks include dozens of so-called riders that would be attached to the legislation. One of the riders could effectively stop a Department of Labor rule designed to expand the number of financial advisers who must act as fiduciaries to retirement plans, including brokers who sell individual retirement accounts.

The bill probably won't be finalized until late Monday night.

“It's going to be one of those high-level negotiations between the big four House and Senate leadership,” said Jason Rosenstock, a partner at Thorn Run Partners consulting firm. He was referring to House Speaker John Boehner, R-Ohio; House Minority Leader Nancy Pelosi, D-Calif.; Senate Majority Leader Harry Reid, D-Nev.; and Senate Minority Leader Mitch McConnell, R-Ky.

With many riders on the negotiating table, lobbyists and congressional staff said it was uncertain which one Democrats would agree to include in the so-called omnibus appropriations bill.

“No one knows where the line will be drawn,” Mr. Rosenstock said.


The Labor agency is scheduled to re-propose the regulation, which it calls the conflicts-of-interest rule, in January. The rule was originally proposed in 2010 but withdrawn after fierce industry protest.

The DOL says the regulation is necessary to protect workers and retirees building their nest eggs. Opponents argue it would significantly increase regulatory costs and liability for brokers, forcing them to stop servicing small IRA accounts.

The rider may take the form of legislation that the Republican-led House has already approved that would force the DOL to hold its rule until the Securities and Exchange Commission proposes its own fiduciary-duty rule. The SEC has not decided whether to proceed with a regulation that would impose fiduciary-duty on all retail financial advice.

Barbara Roper, director of investor protection at the Consumer Federation of America, said making the DOL wait on the SEC would suffocate the DOL rule. She said the DOL already is coordinating with the SEC.

“To suggest they need to go beyond that is absurd and is really just a back-door way to kill DOL rulemaking,” Ms. Roper said.

The Democratic-majority Senate appears to be resisting the rider, Ms. Roper and other lobbyists said. The Senate Appropriations Committee declined to comment while the bill was being negotiated.

“The brokerage industry has shown how relentless it can be in pursuing this issue,” Ms. Roper said. “It will depend on how willing the Democratic leadership and the [Obama] administration are to holding the line on these efforts.”


Talk also is brewing in Washington on a last-minute provision to the omnibus spending bill that members of the House Education and Workforce Committee are reportedly hammering out that retirement advocates fear will result in cuts to retirees' pensions.

According to Politico, this solution, championed by the committee's chairman Rep. John Kline, R-Minn., and departing ranking member, Rep. George Miller, D-Calif., would include a recommendation from the National Coordinating Committee for Multiemployer Plans that would permit trustees of these plans to cut pension benefits for retirees.

The NCCMP pitched this suggestion in a 2013 proposal called “Solutions not Bailouts.”

“Members are still discussing the details about a possible legislative solution to the multiemployer pension crisis and remain hopeful Congress will act before the end of the year," wrote Julia Krahe and Brian Newell, spokespeople for the majority and minority staff of the Committee on Education and the Workforce. "Any decisions regarding how a possible solution might move through the legislative process will be made by leadership at the appropriate time.”

Although the language of the provision isn't available yet, the idea that pension benefits for current retirees could be threatened stoked anger among pension advocates and retirement industry members alike. Multiemployer pension plans, which are negotiated by unions with a group of related employers, receive some coverage from the Pension Benefit Guaranty Corp. in the event a multiemployer plan fails.

However, the PBGC only steps in when a pension plan is unable to provide for its retirees, and according to projections from the Pension Rights Center, only 150 to 200 plans, accounting for 1.5 million workers, risk insolvency in the next 20 years. In all, there are 10 million employees and retirees in some 1,400 multiemployer plans, according to the Pension Rights Center.

“The idea is that there are alternatives that haven't been fully explored and that should be on the table before there is any talk of cutting retirees' benefits,” said Karen Friedman, policy director at the PRC. “It would violate a sacred principle of the [Employee Retirement Income Security Act of 1974], that these benefits can't be cut once they've been funded.”

The concept of drastic action on the part of Congress so late in the year also raised the ire of Brian Graff, CEO of the American Society of Pension Professionals and Actuaries. “From our standpoint, we're more concerned about the process than the substance,” he said, adding that even he hasn't yet seen the wording of the provision.

“This isn't the way to do complicated pension legislation; the better way would be to introduce a bill, get comments from the public and technical experts and hold hearings,” Mr. Graff added. “Fixing multiemployer plans isn't the same as naming a post office.”

Indeed, ERISA attorney Marcia Wagner noted that there are a handful of ways to address the pressure facing multiemployer plans that are less drastic than what's being considered. Those alternatives ought to be tackled by a presidential commission of industry experts, including attorneys and actuaries, she said.

Methods to mitigate the liability pressure facing multiemployer plans include cutting cost-of-living adjustments, discouraging employees from spiking their pensions — a process wherein workers use unused vacation to inflate their salaries just before they retire — and coming up with incentives to push employers to raise contributions to these retirement plans, noted Ms. Wagner.

“I think this is doable, but cooler minds have to prevail,” she said. “Are current benefits going to be cut? That's not helpful. It makes people more militant and afraid.”

Any riders on the bill will likely be revealed soon, as current government funding ends at midnight on Thursday and action is expected before then.


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