The Congressional Black Caucus is warning the Department of Labor that its plan to extend ERISA’s fiduciary standard to IRAs will hurt African-American savers.
In a March 15 letter to the DOL, eight members of the caucus, who are also members of the House Financial Services Committee—including Rep. Maxine Waters, D-Calif., ranking member on the committee—said that if brokers who serve IRA accounts are held to “ERISA’s strict prohibitions on third-party compensation, they may choose to exit the market rather than risk the potentially severe penalties under ERISA for violations.” If that occurs, “it could cause IRA services to be unattainable by many retirement savers in the African-American community.”
This isn’t the first time that lawmakers, or industry officials, have balked at DOL’s decision to extend ERISA fiduciary standards to IRAs. As Brad Campbell, former head of the DOL’s Employee Benefits Security Administration (EBSA), who’s now with Drinker Biddle and Reath in Washington, recently told AdvisorOne, “I think [DOL] not only will continue to apply the rule to IRAs much as originally proposed, but is likely to propose new restrictions on solicitation of IRA rollovers.”
Fred Reish, the partner and chairman of the Financial Services ERISA Team at Drinker Biddle & Reath in Los Angeles, adds that he believes the definition of fiduciary advice will be the same for retirement plans and IRAs.
However, the problem is that “over the years, the sales and compensation practices regarding IRAs have evolved in a way that is fundamentally in conflict with subjecting broker-dealer sales practices and compensation to the fiduciary prohibited transaction rules,” Reish says.
EBSA has said its reproposal, to be released in July, will be backed by a “substantial economic analysis,” but the caucus members told DOL that its economic analysis must “take full consideration” of the rule’s impact on African-Americans.