Congress poised for its last stand against DOL fiduciary rule

The first installment of InvestmentNews' new Fiduciary Focus column looks inside the political wrangling taking place as the fiduciary rule nears finalization.

Congress is poised to make a last stand against a Labor Department rule that would raise investment-advice standards for retirement accounts.

The final DOL rule, which would require financial advisers to act in the best interests of their clients in 401(k) and individual retirement accounts, is expected to be released publicly in March or April.

The ensuing legislative battle likely will be waged on two fronts — with legislation and, separately, a resolution to kill the rule.

“We’ll see a lot of fireworks, once the final rule comes out,” said Kathleen McBride, founder of the consulting firm FiduciaryPath and chairman of the Committee for the Fiduciary Standard.

TWO BILLS

Two bills in the House would require Congress to approve the DOL rule before it goes into effect. In all likelihood, Congress would not approve the rule, triggering legislation that would replace the regulation. That legislation would create an advice standard that includes a best-interests clause and disclosure of conflicts, compensation and fees.

The bills were approved by the House Education and Workforce Committee and the House Ways and Means Committee in February on mostly party-line votes. They are being combined before being sent to the House floor. Similar legislation has been introduced on the Senate side, but it has not received a hearing.

The House bill is not likely to be scheduled for a vote by the full chamber until the final DOL rule is published. Most Democrats opposed the bill because they said that DOL should be given a chance to issue a final rule.

Proponents hope that more Democrats come on board if the final regulation is not modified along the lines outlined by nearly 100 Democrats in a letter to DOL last year.

“Members will be more informed and you’ll potentially see a bipartisan vote on the floor, if they don’t make substantial changes that address the members’ concerns,” said Alane Dent, vice president and deputy for federal relations at the American Council of Life Insurers.

AN ‘END-RUN’ ATTEMPT

During committee work on the bill, the top-ranking Democrat on the Ways and Means Committee, Rep. Sander Levin of Michigan, said the legislation was “an attempted end-run around the rulemaking process.”

One of the bill’s authors, Rep. Peter Roskam, R-Ill., said Congress is within its authority to stop the rule. “Congress is accountable for the rulemaking process,” he said. “Now, Congress is inserting itself into the rulemaking process.”

After meeting with lawmakers and their staff, Ms. McBride said that Democrats are likely to stick with President Barack Obama, who strongly backs the rule.

“There’s not a lot of support on the Democratic side for these bills,” Ms. McBride said.

Another way for Congress to overturn the rule is the Congressional Review Act. Under the law, Congress has 60 legislative days after it receives a final regulation to vote on a joint resolution of disapproval.

But like Mr. Roskam’s legislation, a resolution to kill the rule has to overcome the biggest obstacle in Washington — a presidential veto.

Earlier this year, Mr. Obama vetoed a measure that would have scuttled an Environmental Protection Agency rule.

“Members of Congress know a president isn’t going to torpedo his own rule,” said James Goodwin, senior policy analyst at the Center for Progressive Reform. “It’s a symbolic gesture.”

If Congress stops the DOL fiduciary rule, Democrats would have to live with the fact that the agency likely could not propose a similar regulation again.

“The shadow of a successful Congressional Review Act resolution looms large,” Mr. Goodwin said.

Congress has upended a rule only once. That was in 2001, when a Republican Congress scrapped an ergonomics rule issued late in the Clinton administration. Newly inaugurated President George W. Bush signed the resolution.

A veto override requires a two-thirds majority of both the House and Senate, and each chamber has plenty of Democrats to stop such a move.

Duane Thompson, senior policy analyst at Fi360, a fiduciary training firm, compares the situation to attempts by the Republican Congress to overcome Mr. Obama’s veto of bills that would have gutted the health care reform law, the Affordable Care Act.

“This is ACA on the pension side,” Mr. Thompson said. “No matter what Congress does, it doesn’t have a supermajority to override a veto.”

Much like the Fourth of July, the fireworks on Capitol Hill following the release of the final DOL rule could create a spectacular burst. But they’re likely to dissipate in the air without causing harm on the ground.