Departure of Alexander Acosta could slow DOL effort to revise fiduciary rule

Acting secretary Patrick Pizzella will have to make political decision to move ahead

Jul 12, 2019 @ 1:14 pm

By Mark Schoeff Jr.

The resignation of Labor secretary Alexander Acosta on Friday could delay the agency's release of a replacement for its fiduciary rule.

Under the Obama administration, the DOL issued a regulation that would have required brokers to act in the best interests of their clients in retirement accounts. The measure died in a federal appeals court last year when the Trump administration stopped defending it against a lawsuit filed by financial industry opponents.

The Securities and Exchange Commission subsequently filled the policy void and approved a package of advice reform rules last month. The DOL is scheduled to release in December a revised fiduciary rule that Mr. Acosta told lawmakers would likely be fashioned around the centerpiece of the SEC package, Regulation Best Interest, or Reg BI.

The December timeline may be in jeopardy now that Mr. Acosta is stepping down in the wake of renewed scrutiny of a lenient plea deal he cut with alleged sexual offender Jeffrey Epstein when Mr. Acosta was a U.S. attorney in Florida.

President Donald J. Trump announced Mr. Acosta's deputy, Patrick Pizzella, would become acting labor secretary.

"Any time there's a change at the top, it's safe to assume there might be a reexamination of the agency's priorities and a delay in moving forward with proposed or final rules," said George Michael Gerstein, counsel at Stradley Ronon Stevens & Young. "With something as high profile as [the fiduciary rule], I would expect the acting secretary to take a hard look at it."

A DOL spokeswoman was not immediately available for comment.

The work of overhauling the DOL rule is being led by Preston Rutledge, assistant labor secretary and head of the Employee Benefits Security Administration. Although Mr. Rutledge's efforts likely will proceed despite the turmoil at the top of the agency, releasing a final rule is ultimately a political decision made at the highest levels.

"It's a question of whether the acting secretary of labor is willing to be responsible for a major action like revamping the definition of fiduciary," said Joshua Lichtenstein, partner at Ropes & Gray.

Mr. Pizzella is one of several acting secretaries in Mr. Trump's cabinet. There's speculation about whether those officials feel as empowered as they would if they were serving with Senate confirmation.

Earlier this week, SEC commissioner Hester Peirce said the agency has been keeping the DOL informed about its Reg BI rulemaking. She said at a Securities Industry and Financial Markets Association event in Washington that SEC chairman Jay Clayton has "been talking to them very frequently throughout this whole process, and I'm optimistic that they'll embrace the [SEC] standard."

Mr. Gerstein anticipates Reg BI will mesh with the new DOL fiduciary rule.

"The DOL will ultimately propose a streamlined prohibited transaction exemption that pairs with Regulation Best Interest," he said.

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