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DOL’s Authority to Define Fiduciary Questioned

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House Appropriations Committee Chairman Hal Rogers, R-Ky., questioned the Department of Labor’s authority to change the definition of fiduciary for retirement advisors during the DOL’s budget hearing with the Labor, Health and Human Services, Education, and Related Agencies subcommittee on Tuesday morning.

Rogers, addressing DOL Secretary Thomas Perez, began by saying that the Department of Labor’s jurisdiction lies over the federal pension laws and regulations through the Employee Retirement Income Security Act (ERISA).

“Mr. Secretary,” Rogers said, “ERISA was designed to govern pension plans and 401(k) investment plans provided by an employer. The SEC’s mission is to protect investors and regulate the financial industry including broker-dealers … Please explain to us how ERISA gives DOL jurisdiction over an individual’s relationship with a personal investment advisor.”

Perez responded by saying that both the DOL and the Securities and Exchange Commission have a shared interest in a fiduciary rulemaking.

In fact, while Perez was at his budget hearing, Securities and Exchange Commission Chairwoman Mary Jo White was making her own statements on a fiduciary standard at an event in Phoenix. White said that the SEC should “act” on a uniform fiduciary standard for brokers and investment advisors, one that should be a “codified principles-based standard rooted in the current fiduciary standard for investment advisors.”

“We have overlapping jurisdiction with the SEC,” Perez said at the budget hearing. “We handle ERISA; the SEC handles another set of statutes.”

Rogers also questioned Perez on how much the SEC has been involved in the DOL proposal – a question that has been getting a lot of attention lately.

“Your website says that SEC staff provided significant technical assistance in developing this new proposal,” Rogers said. “However in a recent article, SEC Commissioner Daniel Gallagher is quoted as saying DOL has not formally engaged the SEC commissioners in the process.”  

This isn’t the first time Perez has had to answer this question.

Perez told Rogers: “We sent a letter … in response to an inquiry from Chairman [John] Kline that gets into basically everything that you’ve asked. And outlines in great detail the significant collaboration we’ve had – including I think eight or nine meetings I’ve had with Chairwoman Mary Jo White in this process.” Perez is referring to a request from Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, and Rep. Phil Roe, R-Tenn., chairman of the Health, Employment, Labor and Pensions Subcommittee, to furnish to them by March 18 all of the correspondence between the DOL and the SEC regarding DOL’s fiduciary redraft. Their letter also addressed Gallagher’s concerns.

At the budget hearing, Perez said the DOL’s proposed rule on fiduciary will be “issued in the near future.” And, he added, this proposal will “reflect input that we’ve received from industry, that will reflect input we’ve received from the SEC, that will reflect input we’ve received from consumer advocates.”

Once that proposed rule is out, Perez said, they will have the next period of comment.

Rogers asked Perez if he thought SEC Commissioner Gallagher would be happy with the proposal.

“You’ll have to ask Mr. Gallagher,” Perez responded. “I’ve never met Mr. Gallagher. I’ve dealt with Chairwoman White in this effort … I haven’t dealt with Mr. Gallagher or other members. The only person I’ve dealt with in connection with this rule has been the chair, which I think is the appropriate way to address these issues.”

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