Foes of the Department of Labor’s fiduciary rule told members of Congress on Thursday that it was imperative that Labor further delay its fiduciary rule beyond June 9.
DOL’s “flawed fiduciary regulation is scheduled to become applicable” on June 9, Brad Campbell, former head of Labor’s Employee Benefits Security Administration, told members of the House Subcommittee on Health, Employment, Labor and Pensions.
“Though well-intentioned, this rule is, in my opinion, the poster child for inefficient regulation that will hurt the very people it’s intended to help. The problem is not in the concept of ensuring quality retirement advice and assistance, it’s in the execution of the rule itself,” said Campbell, now an attorney with Drinker, Biddle & Reath’s Washington office.
Campbell told the lawmakers that the rule’s harmful effects are coming into view, as advisors are reporting “increasing minimum asset requirements for advisory accounts, a shift from commission-based accounts to more expensive fee-based accounts, reduced access to products, increased litigation costs and increased liability insurance costs.”
Labor’s fiduciary rule, Campbell argued, “creates massive new class-action liability risks resulting in enforcement by litigation, which is perhaps the most inefficient means possible as it siphons money out of the retirement system and into lawyers’ pockets.”
Changes wrought by the rule “are resulting in not just one-time traditional costs, but in ongoing costs and risks that will be borne ultimately by those retirement investors.”
Based on “the evidence we’ve seen so far” as firms have implemented compliance changes over the past year, Campbell said, “it’s imperative that the Department of Labor further delay the fiduciary rule’s applicability date until it’s completed its review of this new information.”
The hearing comes on the heels of news that Labor Secretary R. Alexander Acosta has made halting the fiduciary rule’s June 9 compliance date a top priority. Reports have said Acosta is looking for a way to freeze the rule that will “stick.”
Members of the House Committee on Education and the Workforce sent a letter to Acosta on April 17 asking him to further delay of the Obama administration’s “flawed” fiduciary rule.
James Kais, senior vice president for Transamerica, who testified along with Campbell said that the “fiduciary rule restricts small employer access to advice needed in establishing and maintaining [retirement] plans, as well as increases the cost of these plans.”
Labor, Kais said, “must work with the administration, the Securities and Exchange Commission and the states in implementing a harmonized, manageable and well-defined best interest standard across product lines and distribution channels,” Kais said. “Without significant reform, the fiduciary rule has and will likely continue to negatively impact access to investment advice primarily by those less affluent who need it most.”
In 2016, Kais continued, Transmerica sales of annuities, “a product that helped individuals manage their retirement savings last a lifetime, fell by approximately 50% from the previous year.”
This figure, he said, means thousands of Americans “who are not counseled to consider a solution that would provide them with guaranteed income in their retirement.”
Labor's fiduciary rule was finalized in April 2016.
Committee chairman Tim Walberg, R-Mich., queried Campbell on whether a legislation fix, namely H.R. 355, the Protecting American Families’ Retirement Advice Act, which was introduced in January and delays for two years the effective date of the Labor fiduciary rule, should be used if Acosta fails to issue a further delay.
“I’m hopeful the Trump administration will delay and handle this as a regulatory matter,” Campbell replied.
The American Council of Life Insurers released a statement Thursday arguing that "the most impactful barrier facing workers and families" is the fiduciary regulation.
The DOL "needs to immediately issue a further delay of the fiduciary regulation until it has completed its re-examination of the regulation to the satisfaction of the president. Ultimately, Labor Secretary Alex Acosta should conclude the examination with a determination that the regulation must be rescinded and replaced."
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