The Obama administration appears poised to push ahead with its support of the Department of Labor’s redraft of its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act, with DOL’s rule landing at the Office of Management and Budget any day now.
According to Bloomberg, Jason Furman, chairman of Obama’s Council of Economic Advisers, drafted a Jan. 13 memo citing research that says some broker practices, such as boosting commissions with excessive trading, cost investors $8 billion to $17 billion a year. “The document was circulated to senior aides and indicates the White House may support tighter oversight of brokers who handle retirement accounts,” Bloomberg says.
“Consumer protections for investment advice in the retail and small-plan markets are inadequate,” Furman wrote in the memo obtained by Bloomberg News, and also signed by Betsey Stevenson, another member of the economic council. “The current regulatory environment creates perverse incentives that ultimately cost savers billions of dollars a year.”
ThinkAdvisor reported last July that the White House’s National Economic Council would be performing “industry outreach” regarding the DOL’s fiduciary redraft.
The redraft, which was set to be released in January, should be sent to OMB for review “soon,” Lee Covington, senior vice president and general counsel for the Insured Retirement Institute, said on a Tuesday call.
Andrew Remo, congressional affairs manager for the American Society of Pension Professionals and Actuaries, said in a recent blog post that he expected “the substance” of DOL’s reproposed fiduciary regulation to be sent to OMB for “formal” Obama administration approval “shortly” after the State of the Union address.
Senate Finance Committee Chairman Orrin Hatch, R-Utah, reiterated his intention in a Tuesday morning speech before the U.S. Chamber of Commerce to push for passage of his Secure Annuities for Employee (SAFE) Retirement Act, which he said the Finance Committee “will take up in this Congress.”
The SAFE Retirement Act seeks to torpedo the DOL’s efforts to put IRA advice under a fiduciary standard. The SAFE Retirement Act, Hatch said, “ensures that hardworking Americans will continue to have affordable access to professional investment advice by restoring jurisdiction over the IRA fiduciary duty rule to the Treasury Department and requiring Treasury to consult with the Securities and Exchange Commission when prescribing rules relating to the professional standard of care owed by brokers and investment advisors to IRA owners.”
Added Hatch: “It only makes sense to give Treasury the lead. After all, the fiduciary duty rule for IRAs is in the tax code.”
Hatch said that he looked “forward to seeing the SAFE Retirement Act enacted into law.”
Covington said on the Tuesday call that the Treasury jurisdictional provision in Hatch’s SAFE Retirement Act “may not be necessary,” depending on what DOL’s reproposed rule “looks like.”
In the run-up to the expected release this month to OMB of DOL’s fiduciary redraft, a group of “public interest organizations,” which favor DOL fiduciary action and include the Consumer Federation of America, AARP, Better Markets, Pension Rights Center and Americans for Financial Reform, released Thursday a website called Saveourretirement.com.
Barbara Roper, director of Investor Protection at the Consumer Federation, told ThinkAdvisor in a Tuesday phone interview that the groups launching the site are “strong supporters of having DOL repropose” its fiduciary rule. “We believe that the public would support it as well if they knew what was at stake, if they knew there was a battle going on” around this issue. The purpose of the website, Roper said, “is to engage the public, educate them on the issue and encourage them to make their voices heard.”
The DOL redraft, Roper said, “offers our best prospect for progress” on fiduciary reform, as the Securities and Exchange Commission “can’t make up its mind whether to pursue” its own fiduciary rulemaking.
Added Roper: “It’s very encouraging that the White House appears to have gotten behind the [DOL fiduciary] rule with some degree of enthusiasm because we know there will be attacks in Congress, but those are less of a threat if any legislation has to overcome a presidential veto.”
The administration also plans to revive the “auto-IRA,” which has been floated before but has received little support.
Hatch also derided in a Tuesday morning speech at the U.S. Chamber of Commerce Obama’s tax overhaul plans as laid out in his State of the Union speech. “We’ve seen reports that, in tonight’s State of the Union address, the president plans to call for tax hikes in the name of simplifying the tax code and helping the middle class,” Hatch said. “And, the tax hikes he’s proposing would be particularly damaging, undoing tax policies that have been successful in helping to expand the economy, promote savings and create jobs.”
Hatch stated that while Obama “may be using language typically associated with tax reform, his goals depart in many ways from the principles I’ve put forward.”
He noted that he and Sen. Ron Wyden, D-Ore., ranking member on the Finance Committee, appointed last week leaders to five tax reform working groups and tasked them with studying various areas of the code to “find solutions and offer proposals for reform.”
The five working groups are: Individual Income Tax; Business Income Tax; Savings and Investment; International Tax; and Community Development and Infrastructure.
“The purpose of this endeavor with the working groups is produce bipartisan tax reform legislation that will be introduced and marked up in the Finance Committee later this year,” Hatch said. “My only goal when it comes to tax reform is to make new law.”
Hatch stated to reporters after his speech that his goal is “comprehensive” tax reform, not piecemeal reform.
— Check out Top 3 Advisor Challenges for 2015: Advisor FinTech, Regulation, Differentiation by Michael Kitces on ThinkAdvisor.