The next battle over a Labor Department regulation that would substantially expand the definition of “fiduciary” for people giving advice to retirement plans has begun.
More than 30 House Democrats sent a letter late Monday afternoon to Secretary of Labor Hilda Solis outlining what they want to see in a re-proposed rule.
The original rule was withdrawn by the agency in September after a firestorm of criticism from the financial industry, which argued that it was overreaching and would force broker-dealers to abandon the individual retirement account market.
The rule would have subjected advice given to IRA holders to a fiduciary duty. Currently, advisers to IRAs adhere to the less stringent suitability standard that brokers must meet for other products.
The Labor Department plans to re-propose the rule early next year. When it does so, the Democratic lawmakers urge the agency to draft it narrowly “to address well-defined and documented concerns.” They also asked the agency to ensure that it “preserves the access of IRA owners and plan participants to investment services delivered by qualified financial professionals using whatever business model best fits the investor's objectives.”
The lawmakers also encouraged the agency to “perform a complete cost-benefit analysis” to justify the new regulation.
The letter was sent by Rep. James Himes, D-Conn., and also includes the signatures of Rep. Carolyn McCarthy, D-N.Y., a leader of the New Democrat Coalition's effort to get the original fiduciary proposal withdrawn, and Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee.
The Financial Services Institute Inc. took partial credit for the letter, noting that its members met with each of the signatories as part of more than 260 Capitol Hill meetings during the FSI's advocacy summit in Washington in early October.
The lead Labor Department official in writing the fiduciary regulation, however, is standing her ground. Assistant Labor Secretary Phyllis Borzi has indicated that IRAs again will appear in the re-proposed rule. She argues that federal retirement laws must be updated to protect workers and retirees who are now responsible for their own nest eggs through defined-contribution plans such as 401(k)s and IRAs.
“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.
The FSI is not ruling out a middle ground on an IRA provision.
“There may be ways that IRAs could be included, yet not to the detriment of hardworking Americans,” FSI spokesman Chris Paulitz wrote in an e-mail. “The best way to ensure Americans can access affordable advice on their IRAs, of course, is to follow the guidance of the House Democrats in their letter to the secretary.”
