Experts say president's re-election would lead to a much broader — and tougher — definition of 'fiduciary'; rollover business at stake
The Labor Department's proposal to broaden the definition of fiduciary will be pushed hard if President Barack Obama wins a second term, say ERISA attorneys.
“If Obama wins, we will see a reproposal [of the fiduciary rule],” said Bradford Campbell, counsel at Drinker Biddle Reath LLP. “I think we'll also see an actual proposal on dealing with rollovers that will make conversations with participants on distributions fiduciary advice.”
Mr. Campbell, who is also former assistant secretary of Labor for the Employee Benefits Security Administration, held a call Thursday afternoon, along with Fred Reish, a partner at Drinker Biddle, to discuss upcoming regulatory developments for retirement plans.
When the Labor Department initially proposed its regulation to broaden the definition of fiduciary, which would apply that higher standard of care to brokers, the agency asked whether its stand in a 2005 advisory provision was sufficiently protective of participants. If the fiduciary re-proposal resurfaces, Mr. Campbell believes that the DOL will answer that question with a new pitch for restrictions on distributions given to plan participants as they roll out of their 401(k)s into individual retirement accounts.
“To say that all discussions are fiduciary in nature, it's going to make it hard for someone affiliated with the plan to have that conversation about distribution,” Mr. Campbell said in an interview. “If the DOL takes the view that this is fiduciary advice, it will make it hard to get advice at retirement.”
He expected the guidance to “disappear” if Mitt Romney wins the White House. “There is no reason to believe his administration would place a high priority on changing the definition of fiduciary.”
A tougher stance on distributions into IRAs — a $4.5 trillion business — would dent the bottom lines of broker-dealers and other service providers: Harvesting lucrative rollovers from the highest-earning employees as they retire has long been the payoff for brokers and others in the business.
Mr. Reish said he expected the fiduciary re-proposal to include some softening for broker-dealers, possibly through a prohibited transaction exemption that would allow principal trading. The agency may also have a lighter touch when it comes to how the IRA is invested. Rather, it's the recommendation that workers roll their assets out of the plan that will come under scrutiny.
“We'll get a regulation that's modified enough to reduce the criticism,” said Mr. Reish. “It's not putting out a fire, but making it a smaller fire.”
DOL spokesman Michael Trupo declined to comment.
