In his testimony before the House subcommittee on Health, Employment, Labor and Pensions, Secretary of Labor Thomas Perez reiterated his commitment to finalizing a workable fiduciary rule.
Doing so will require continued input from a broad range of stakeholders, said Perez, in order to “operationalize” the uniform fiduciary standard laid out in the DOL’s proposal.
Perez’s leadership has been a welcomed improvement, as demonstrated by a continued willingness to work with the Committee on Education and Workforce on a range of issues, according to subcommittee member Rep. Joe Courtney, D-Connecticut.
Courtney called the DOL’s first efforts to advance a new rule in 2010 a “disaster” and a “fiasco.” That, of course, was prior to Secretary Perez’s appointment to Labor.
Perez said he and his team sought to “build a big table” in crafting its proposal and will continue to listen to stakeholders to assure the best rule is finalized.
The subcommittee gave him a chance to make good on that pledge. At a small table, five witnesses gathered after Secretary Perez’s testimony to give theirs. They offered no shortage of input.
Here is a breakdown of their perspectives, in the order of their testimony.
Kent Mason, attorney and partner at Davis and Harman
Mason’s legal career has been committed to the area of retirement plans. From his perspective advising plan sponsors and stakeholders in the financial service industry, everyone is “absolutely fine with a best interest standard,” echoing a policy sentiment proffered by SIFMA, FINRA, and other advocates of the brokerage industry that oppose the rule advanced by the DOL.
The primary concern of Mason’s clients has always been the question of prohibited transactions, according to his testimony.
“This has been the issue for 4 ½ years, and it hasn’t really been addressed,” he said.
The DOL’s proposal commits significant space to prohibited transactions, yet to Mason’s mind, it still fails to clearly define what exactly is prohibited.
In his reading, the proposal makes the existing brokerage model “illegal.”
The alternative, fee-based advisory model, simply doesn’t work for smaller IRA accounts, he added.
Also, the 2015 proposal “explicitly” cuts back on permissible financial investment education, whereas the 2010 rule attempted to preserve it.
“The perception is that this had been an evolution,” said Mason, comparing the latest proposal to the first. “In actuality, there is a growing consensus that the 2015 proposal is much worse and much less workable than the 2010 proposal,” he claimed.
“The trend line is going in a disturbing direction,” he added. Jack Haley, executive vice president, Fidelity Investments
Fidelity services almost 8,000 plans with less than $100,000 million in assets, and acts in the best interest of those clients, according to Haley.
“We support a best interest fiduciary standard, but the details matter. We fear this proposed regulation will severely restrict our ability to provide assistance to small businesses and workers,” he said.
Specifically, the Best Interest Contract Exemptions contain “so many problematic conditions” that the rule is unworkable as drafted, he added.
Ordinary customer service conversations would be jeopardized. And contracts would have to be signed before a conversation even begun, he testified, a point that Secretary Perez addressed in his testimony as an area of confusion that will be addressed.
Dennis Kelleher, president and CEO, Better Markets, Inc.
Aside from Secretary Perez, Kelleher was the day’s lone witness who fully backs the DOL’s efforts.
The existing regulatory system, which he says allows broker to put their interests before their clients’, is “unacceptable.”
ERISA is “outdated and incapable of protecting workers and retirees.” The rule has remained “frozen in time as if nothing has changed,” when in fact the country’s transition from defined benefit pension plans to self-funded plans has been a “monumental and mind boggling shift,” he said.