More than four dozen Republican House members sent a letter to the Labor Department today, urging the agency to tread carefully if it includes individual retirement accounts in a new rule that would expand how the term fiduciary is defined for people who provide advice to retirement plans.
The Republicans presented a six-point guideline for the fiduciary duty rewrite, which the Labor Department intends to propose early next year. The original rule was withdrawn in September following a firestorm of protest from GOP and Democratic lawmakers and financial industry groups.
The re-proposed rule should be written so that it “clearly recognizes that IRA accounts are significantly different from employer-sponsored plans because the IRA investor has nearly a limitless choice among service providers and investment products,” states the GOP letter, which was signed by 55 lawmakers.
The letter also says that the rule must be “carefully and effectively targeted to address well-defined and documented problems in the retirement planning advice business” and avoid “costly new regulatory requirements that exceed their proven benefits for investors.”
That language reflects Capitol Hill and industry concern that the original rule was too expansive. It would have subjected IRAs to fiduciary rules for the first time. Critics asserted that the new rule would have forced broker-dealers to abandon the IRA market.
The Labor Department has argued that the fiduciary-duty provisions of federal retirement law, which haven't been changed since it was enacted in 1974, must be updated to protect workers and retirees who are now responsible for their own nest eggs through defined-contributions plans and IRAs.
Monday's letter from House Republicans is similar to message sent by House Democrats to the Labor Department on Nov. 8.
RELATED ITEM Lawmakers, adviser groups gird for another fiduciary-rule battle with DOL »
The moves demonstrate that lawmakers are gearing up for another battle over the Labor Department's fiduciary rule when it is re-proposed.
“It is imperative that the department, if it chooses to re-propose the rule, recognize the broad range of financial products and services currently available and avoid costly new regulations that may reduce choice among qualified service providers and investment products,” the GOP letter states.
Dale Brown, president and chief executive of the Financial Services Institute Inc., said that the group has always anticipated that the DOL would follow through with a fiduciary-duty re-proposal. It takes partial credit for the Republican and Democratic letters, saying that FSI members visited more than 260 congressional offices earlier this fall to ask lawmakers to weigh in on the issue.
“We fully expected and urged DOL to come back with a more appropriate rule, based off a sound economic impact study and a true picture of the problem they're trying to solve,” Mr. Brown said in a statement. “We are ready to work with DOL to address concerns with the sale and servicing of retirement accounts and to move forward in a way that benefits consumers and the industry alike.”
The lead regulator on the fiduciary duty issue, Assistant Labor Secretary Phyllis Borzi, has indicated that she intends to keep IRAs in the re-proposed rule.
“We've created a system in which people's retirement assets have gone from a regulated [defined-benefit] system … to a system in which most of the assets are moving out at a rapid pace into the IRA marketplace, which is far less regulated than any other marketplace,” Ms. Borzi said in October at the annual conference of the American Society of Pension Professionals and Actuaries.
Meanwhile, the Securities and Exchange Commission is considering a fiduciary duty rule for retail investment advice. The agency will not propose a regulation until sometime next year.
