Senior members of Congress, both Democrat and Republican, have signed letters calling for a delay or end to the Labor Department’s effort to rewrite the 5-part retirement plan fiduciary definition that deals with those who sell investment retirement accounts.
Those signing letters asking the DOL’s Employee Benefits Security Administration to delay changing the definition include four top-ranking Republicans, who are either the chairmen or the ranking members of key House and Senate committees. Four members of the Missouri House delegation, two Republicans and two Democrats, sent one letter. Eight House Democratic members also sent a letter.
The DOL proposal seeks to update a fiduciary definition that was developed in 1975. Critics of the existing definition say it is so complicated that it excludes some advisors who clearly have violated obligations to act in the client’s best interest.
Other critics say the proposed revision could turn ethical, law-abiding advisors into accidental fiduciaries by creating fiduciary relationships in instances in which there is no written contract establishing an advisor as a fiduciary; and in which the advisor does not appear to be engaging in activities that traditionally would have made an advisor a fiduciary.
In general, the Republican letters ask the agency to delay acting on the proposal or significantly rewrite it to vastly curtail its impact. The request of the eight Democrats, all senior members from urban areas, is more modest.
The letter from the ranking Republicans alleges that a “bright-line regulatory test and guidance that has governed for the past 35 years is being discarded in a manner that is very likely to bring considerable disruption in the service provider and plan sponsor community.”
The letter also says that “one obvious effect” of the DOL’s proposal will be to trigger the IRS code’s prohibited transaction excise taxes for a “vastly larger population of investment professionals with no apparent corresponding benefit for IRA owners.”
The letter was signed by Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee; Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee; and Sen. Michael Enzi, R-Wyoming, ranking member of the Senate Committee on Health, Education Labor and Pensions; and Sen. Orrin Hatch, R-Utah, ranking minority member of the Senate Finance Committee.
The letter from the eight House Democrats say relatively minor changes in the proposed rule will address their concerns.
“The definition of fiduciary needs to be broad enough to ensure that advice provided to retirement plan participants and plan sponsors is designed to serve their interests,” the Democratic letter says.
“On the other hand, if the definition is too broad, we risk losing investment education and information if advisors withdraw from these services, leading to less choice and higher costs,” the letter says.
“We believe any new rule must be balanced in order to increase protections for participants without adversely impacting access or costs,” the letter adds.
Those signing the letter include Rep. Richard Neal, D-Mass., a ranking member of the House Ways and Means Committee; Rep. John Lewis, D-Ga., a member of the House Democratic leadership; and such moderate Democrats as Rep. Shelley Berkley of Nevada and Joseph Crowley, New York.