Debate over a Labor Department proposal to reduce conflicts of interest for brokers working with retirement accounts is about to get hotter — and more public.
Next week, the DOL will host
four days of hearings about the proposed fiduciary rule — Aug. 10 through Aug. 13 — featuring 75 witnesses.
The sessions, held at DOL headquarters in Washington, could get contentious. The individual panels will include two or three participants, often representing different sides of the debate. Each party will give opening comments and also engage in dialogue with DOL officials.
“It provides the Department of Labor staff the opportunity to maybe dig in a little bit on the contrasting views in the same panel," said Duane Thompson, senior policy analyst for Fi360, a fiduciary-duty consulting firm. "You're probably not going to find too many people in the middle.”
By the end of next week, those with an interest in the fiduciary proposal won't be able to say they didn't have a chance to make their voices heard. Following the close of the initial comment period on the proposal, which
generated more than 900 letters, the DOL accommodated any group that requested a spot on the hearing agenda, according to DOL spokesman Michael Trupo.
The DOL will publish a transcript of the hearing and open another comment period that will run from Aug. 10 until two weeks after the transcript is posted.
The proposal was introduced in April with White House backing nearly five years after a similar proposal was first floated. That measure was withdrawn amid fierce financial industry backlash. Now the DOL is trying again to push the rule through before the Obama administration leaves office.
The Labor Department asserts that the rule would curb incentives for brokers to put clients into high-fee products that erode their retirement savings. The industry says it is too expansive and would significantly increase liability risk and regulatory costs, potentially discouraging brokers from serving investors with modest accounts.
The hearings promise to rehash these arguments, while giving the agency a chance to say that it is listening.
“It's more of a political exercise than anything else,” Mr. Thompson said. “You're not going to see any revelations that you haven't seen in the comment letters.”
In appearances on Capitol Hill and elsewhere, Labor Secretary Thomas Perez has emphasized that the agency is open to modifying and streamlining the rule in response to criticism.
But with a final rule likely to be released next spring, there is little time for the DOL to make changes to the lengthy measure.
Bradford Campbell, a partner at Drinker Biddle & Reath and a former head of the DOL's Employee Benefits Security Administration, which wrote the rule, said it has “dozens of major technical flaws.”
“How much the DOL will correct the problems with the proposal is partly a technical issue and partly a political one,” Mr. Campbell said. “It will be very difficult to do these technical issues justice in the few months available to the department if it intends to issue a final rule next spring.”
Some participants in the debate over the rule are holding out hope that the hearings will produce a breakthrough in which the two sides come closer together.
Knut Rostad, president of the Institute for the Fiduciary Standard, said the sessions will give industry opponents a chance to outline “constructive suggestions” to reduce the rule's regulatory burdens while maintaining its investor protections.
“We'll see whether they hang together in opposition or whether we'll see concrete evidence of good-faith efforts to work with DOL,” Mr. Rostad said.
In its appearance, the American Council of Life Insurers will highlight a new report showing that the average surrender fee for withdrawal of funds from a variable annuity is less than 1% of the surrender amount. Mr. Perez often points to the risks associated with the vehicles — and the sales incentives tied to them — to support the DOL rule.
“For the vast majority of surrenders, there is no fee,” said Andrew Melnyk, ACLI vice president of research. “Variable annuities are held for the long term and they're doing what they're supposed to do — generate income streams throughout retirement.”
While the industry keeps pressure on the DOL, the agency also is getting push-back on the rule from Capitol Hill.
In a July 29 letter to Mr. Perez, two House Democrats joined their Republican colleagues in calling for the proposal to be withdrawn. In Aug. 5 and Aug. 6 letters, five Senate Democrats asked Mr. Perez to modify the rule in half a dozen different ways.
In a highly charged political atmosphere, the DOL is trying to show that it is going the extra mile to gather input.
“The Department of Labor doesn't want to give the impression that it is rushing [the rule] through the process,” Mr. Thompson said.
