From the March 2017 issue of Investment Advisor • Subscribe!

DOL Moves to Delay Fiduciary Rule

After President Trump orders Labor to review the rule, acting Labor secretary files to start delay of April 10 compliance date

Pres. Donald Trump signs an executive order in the Oval Office. (Photo: AP) Pres. Donald Trump signs an executive order in the Oval Office. (Photo: AP)

After a third federal court ruling in early February upheld the Department of Labor's fiduciary rule, Labor's Acting Secretary Edward Hugler filed in short order with the Office of Management and Budget to delay the rule's April 10 compliance date.

Hugler's filing came only days after President Donald Trump directed DOL on Feb. 3 to review its fiduciary rule, and if it deems appropriate, come up with a plan to revise the rulemaking.

(Related: Trump’s New Labor Pick Acosta Likely to Be More Nuanced Than Puzder)

That plan was filed in mid-February with OMB via a Notice of Proposed Rulemaking.

The notice filed at OMB did not say how long Labor plans to delay the rule's April 10 compliance date, though it's been widely discussed that Labor will propose a 180-day delay with a 15-day comment period on the plan.

Details of Labor's plan won't be revealed until OMB approves the notice, which could be published in the Federal Register by the end of February.

“I assume that the department will automatically delay that date in order to allow sufficient time to do the analysis” of the rule, said Fred Reish, a partner in Drinker Biddle & Reath's employee benefits and executive compensation practice group in Los Angeles.

Nonetheless, Reish added, “it will be uncomfortable for the financial services sector to wait and see if the DOL actually delays the date. If the department determines that the rule does adversely affect investors or retirees, it is further directed to rescind or revise the rule, as appropriate.”

Barbara Roper, director of investor protection for the Consumer Federation of America, added that while the delay is “hardly unexpected” in light of Trump's executive order, “it is a disappointment that this administration continues its attack on the most important improvement in investor protections in a generation.”

Three courts, she continued, “have carefully considered the rule, and all three have upheld it. Any further delay increases the cost and confusion around implementation of the rule and deprives working families and retirees of cost savings they would otherwise have enjoyed.”

In its review, the administration also told DOL to undertake an “updated economic and legal analysis of the rule, including analyzing potential harm to investors, disruptions within the retirement services industry, price increases to investors and increased litigation.”

In his executive order, Trump wrote that “one of the priorities of my administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies.”

DOL's fiduciary rule, it continued, “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my administration.”

Texas Judge Upholds DOL Rule

The court ruling in favor of the fiduciary rule came from Judge Barbara Lynn of the U.S. District Court for the Northern District of Texas.

Judge Lynn stated in her Feb. 8 ruling that “in contrast to the situations in the cases cited by Plaintiffs, in [the Employee Retirement Income Security Act] Congress did speak clearly, and assigned the DOL the power to regulate a significant portion of the American economy, which the DOL has done since the statute was enacted.”

Congress, Lynn said, “gave the DOL broad discretion to use its expertise and to weigh policy concerns when deciding how best to protect retirement investors from conflicted transactions.”

Lynn's opinion is a “complete vindication” of former Labor Secretary Tom Perez, Phyllis Borzi “and the rest of Obama's Department of Labor,” said Tom Clark, of counsel with The Wagner Law Group.

In a joint statement, the co-plaintiffs — which includes the Securities Industry and Financial Markets Association, the Financial Services Institute as well as the U.S. Chamber of Commerce — said they “continue to believe that the Department of Labor exceeded its authority, and we will pursue all of our available options to see that this rule is rescinded.”

The plaintiffs said Trump's recent directive to the department to review the rule reflects “well-founded, ongoing and significant concerns about the rule, [and] is a welcome development.”

New Labor Nominee Puzder to Get Grilled

Simultaneous to the DOL filing for a fiduciary rule delay, the Senate Committee on Health, Education, Labor and Pensions scheduled the nomination hearing for Andrew Puzder, Trump's choice to be the next Labor secretary, for Feb. 16.

The embattled Labor secretary pick — whose nomination hearing had already been postponed four times — was being urged at press time by Senate Democrats, led by Minority Leader Chuck Schumer of New York and ranking member of the HELP committee Sen. Patty Murray of Washington, to withdraw as Trump's nominee.

Schumer said at an early February rally on Capitol Hill that Trump “could not have picked a worse nominee to uphold [Labor's] goals than Andrew Puzder. Everything in his career is antithetical to the goals of the Department of Labor.”

Puzder's career mission statement, Schumer said, would be “the exact opposite of the mission statement of the Department of Labor. It would fly in the face of what's good for the hundreds of millions of working American women and men. Andrew Puzder's mission statement has been defined by cutting corners and putting profits over people, over his workers.”

Add One, Delete Two

After meeting with small business leaders in late January, Trump signed an executive order to require federal agencies to propose deleting two regulations for each new one they issue, and also promised that his administration would do a “big number” on the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“We have to knock out two regulations for every new regulation,” Trump said in issuing his order titled “Reducing Regulation and Controlling Regulatory Costs.”

“So if there's a new regulation, they have to knock out two. But it goes far beyond that. We’re cutting regulations massively for small business, and for large business, but they’re different,” Trump said. “There will be regulation, there will be control, but it will be a normalized control where you can open your business and expand your business very easily.”

The order, however, does not include independent agencies like the SEC and the Consumer Financial Protection Bureau.

--- Read Bogle: ‘Fiduciary Principle Will Live On’ No Matter What on ThinkAdvisor.

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