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Phyllis Borzi, assistant secretary of Labor for the Employee Benefits Security Administration, said Tuesday that while EBSA has been “making progress” on its reproposal to amend the definition of fiduciary under ERISA, release of the revised plan won’t come in October “because we are not finished.”
EBSA's semiannual regulatory agenda had said a reproposal to amend the definition of fiduciary under the Employee Retirement Income Security Act would come in October.
But Borzi told attendees at the Financial Services Institute’s Advisor Summit in Washington that the October deadline, which was announced in July, was an “educated guess” of when a reproposal could be sent to the Office of Management and Budget (OMB).
“The point of working on the reproposal is to get it right,” Borzi said. “We are trying very hard to make sure we’ve crossed all the T's and dotted all the I's. We shared many of the concerns that people have raised in the public comment process, and we want to make sure we’ve given it our best shot.”
Borzi made her comments during a one-on-one question and answer session with FSI President and CEO Dale Brown. FSI has been a staunch opponent of the DOL’s fiduciary plan. As Brown said before posing his questions to Borzi: the DOL’s fiduciary rule is a “high priority for FSI because [it is] concerned that it will limit access to advice.”
DOL is required to send its rule proposals to OMB, but the Securities and Exchange Commission is only required to send final rules to OMB.
Once DOL sends OMB its reproposed fiduciary rule, OMB then checks the proposal’s cost-benefit analysis and gives DOL feedback on the proposal, asking for changes if necessary. DOL must then make the changes and have them approved by OMB before putting the proposal out for public comment.
As Borzi said during her comments at the FSI event, OMB has “a minimum of 90 days” to review DOL’s fiduciary plan. “OMB is the reviewer that keeps us honest,” she said, making sure that DOL’s “regulation has been properly coordinated with the other agencies that have an interest in this issue.”
Borzi told ThinkAdvisor after her comments that she could not say when a reproposal would be sent to OMB.
Industry officials were surprised, disappointed and thankful for the delay.
“I am surprised” by the delay “considering the length of time that [DOL] has been working on the proposal,” Fred Reish, partner and chairman of the financial services ERISA team at Drinker Biddle & Reath, told ThinkAdvisor.
But in all fairness, Reish says further delay can be expected as Borzi and her team will be releasing a “package of rules that will include a number of proposed prohibited transaction exemptions.” Indeed, as Borzi reiterated at the FSI event, the package that will be sent to OMB will include “the text of the reg, the preamble, and a regulatory impact analysis.”
When asked by Brown if the reproposal would indeed include IRAs — which advisors have vigorously complained will cause them to lose their ability to earn commissions on IRA advice — Borzi asserted: “We will cover them.”
“What this multiyear process has shown us is that there’s an even greater need to protect those in IRAs…We are going to move forward on that.”
But Reish also voiced his disappointment with the delay. “It seems like we have been waiting for a long time,” he says. “It would be helpful to see the DOL’s proposal [because] right now, we are in a holding pattern on advising clients about how to plan for the future.” He conceded, however, that “it is important that the DOL take the time to get this [reproposal] right.”
Brad Campbell, former head of EBSA who’s now of counsel in Drinker Biddle & Reath’s Washington office, said that he welcomes the delay “given the importance of the issue.”
As the bipartisan congressional opposition to the original proposal that was released in 2010 demonstrates, Campbell says, “DOL has to make substantive changes if it intends to proceed,” and the Department “also needs to actually coordinate with, not just talk to, its counterparts at the SEC.”
Brown told ThinkAdvisor that FSI is "encouraged" that DOL's "focus is on getting [the reproposal] right, and not getting it done quickly. Our concern is avoiding unintended consequences for small investors."
Brown and Borzi’s nearly hourlong discussion did include some awkward moments. One notable one came when Brown asked Borzi if the revamped proposal would be “business-model neutral.”
Replied Borzi: “I find this question puzzling because ERISA doesn’t regulate business models, it regulates behavior. The issue is to attack the problem of conflicted advice. As long as the advisor giving this advice is insulated from conflicts of interest, we’re indifferent.”
Check out September Surprise: Fiduciary Supporters Lobby the SEC on ThinkAdvisor.