The Department of Labor's withdrawal of a controversial rule allowing advisers to work directly with retirement plan participants — just days after the agency extended the effective date of the rule — has some industry observers wondering if DOL officials are buckling under pressure from Congress.
The Department of Labor’s withdrawal of a controversial rule allowing advisers to work directly with retirement plan participants — just days after the agency extended the effective date of the rule — has some industry observers wondering if DOL officials are buckling under pressure from Congress.
The rule, originally proposed under the Bush administration, would have allowed representatives of mutual fund companies to offer direct advice on investments to defined-contribution plan participants.
But the DOL’s Employee Benefits Security Administration announced today it has formally killed the investment advice rule. The scrapping of the rule came just three days after the DOL announced it was delaying the effective date of the rule until May 17, 2010—the third time the date had been pushed back.
While experts anticipated that the DOL would make the rule more restrictive, they now wonder if the agency is being pushed by Congress to hold off on passing regulations until Congress addresses the issue itself.
“It seems like someone in Congress gave the order to stand down,” said Jason C. Roberts, a partner at law firm Reish & Reicher.
Indeed, a number of people are speculating that the Senate Banking Committee’s proposal to place all advisers under the fiduciary standard could address the conflicted-advice issue that DOL regulations were attempting to address.
“They may want to put all of this as part of one big form of legislation instead of sorting it out in piecemeal, which makes sense,” Mr. Roberts said.
It’s no secret that members of Congress have been pressuring the DOL to be more restrictive on the issue of investment advice within retirement plans. Most notably, House Education and Labor Committee Chairman George Miller, D-Calif., has been vocal in his objection to the Bush rules.
“There has been a turf war that has been ongoing since Rep. Miller first became interested in these issues a few years ago,” said Greg Ash, head of the Employee Retirement Income Security Act litigation group at Spencer Fane Britt & Browne LLP. “This could be an indication that the DOL has succumbed to those congressional pressures and is going to see what they do before coming out with something on its own.”
That could mean the advisers and plan sponsors have a long time to wait, experts said. “If we are waiting for Congress, we won’t be doing anything on advice for at least a year-and-a-half,” Mr. Roberts said.
In announcing the withdrawalof the rule, the DOL said it planned to issue a new proposed regulation on investment advice — but didn’t provide a timetable. Calls to the press offices at the DOL, and the Senate Banking Committee and House Education and Labor Committee were not returned by press time.
