On Tuesday night, the Department of Labor’s proposed fiduciary rule survived what many viewed as a significant threat when the U.S. House of Representatives released next year’s omnibus spending bill.
No defund rider, no alternative legislation, no required new comment period
Missing from the more than 1,000-page bill document was a rider that would defund Labor’s ability to implement a new rule.
Also missing was alternative legislation that would water down the proposed rule’s Best Interest Contract Exemption.
Nor was there a provision requiring the DOL to open another comment period before finalizing its rule, a tactic some legal experts say is required under the Administrative Procedure Act.
Proponents of the DOL’s rule argued that strategy amounted to a stall tactic and would have made it logistically impossible to finalize a rule before the end of the Obama Administration.
Stakeholders and lawmakers that argue the DOL is overstepping its jurisdiction with the proposal had considered each option as a legislative counterattack.
Most recently, the option of attaching a rider requiring another 30-day comment period seemed the most likely to appear in the omnibus bill, which allocates $1.1 trillion in government spending for next year, and of course must be signed by President Obama to avoid a government shutdown.
Barbara Roper, director of investor protection at the Consumer Federation of America and a prominent advocate for the DOL’s rule, expressed her fear that industry would successfully lobby Congress to attach a rider stonewalling the DOL as early as last Summer, in an interview with BenefitsPro.
“Given how aggressively industry opponents fought for a policy rider to defund, or at least delay, the rule, this is a huge victory,” said Roper in an email exchange, after the text of the bill was finally posted online late last night.
“Obviously, we are thrilled that the Department of Labor will be free to work, without further delay or interference, to complete its rule and deliver the protections that retirement savers expect and deserve when they turn to financial professionals for investment advice,” she said.
A victory, but …
Roper said that for however significant this latest victory for the DOL rule may be, the battle still rages on.
“This was a major hurdle to cross and we crossed it,” she said. “But we know the industry opposition will be unrelenting, and there is still a long road ahead before this rule is finalized.”
Dale Brown, CEO and president of the Financial Services Institute, downplayed last night’s development.
“The odds of passing an omnibus bill with a rider to protect retirement investors from the Department of Labor’s fiduciary rule were always slim,” said Brown in a statement.
FSI advocates on behalf of the financial services industry that argues the DOL’s prohibited transaction requirements will effectively outlaw commission-based compensation, and all but require fee-based compensation on all accounts.
The unintended consequence of the rule will be that advisors will be disincentivized from servicing lower-income investors, according to the FSI and other industry groups.
Still possible to kill DOL rule?
Brown also said the opportunity to attach a rider to the omnibus bill was not Congress’ last chance to act.
“Congress not only has the right but the duty to fulfill their legislative role and protect retirement savers,” said Brown.
Cathy Weatherford, CEO of the Insured Retirement Institute, which represents annuity providers, among other stakeholders, also called on continued Congressional effort to assure a functional new standard.
Calling retirement security the “paramount domestic policy issue of our day,” Weatherford said, “It is imperative that Congress has its say on this matter.”
“Members of Congress, on a bipartisan basis, have echoed our concerns about the DOL’s proposal – specifically that it will impede hardworking Americans’ ability to access guaranteed lifetime income strategies that provide retirement income that cannot be outlived,” she said in a statement.
Ratings agencies have reported that the DOL’s rule, as proposed, would likely constrict distribution of annuity products.
“We are at a critical juncture in the rulemaking process where these concerns need to lead to an appropriate response that addresses these issues,” added Weatherford.
The fight continues
One lawmaker that has led the fight against the DOL’s proposal, Rep. Ann Wagner, R-Missouri, vowed to not back down in wake of the omnibus bill’s release.
“I will continue this fight until the rule is delayed, dismantled and defeated,” said Wagner in a statement.
Wagner has twice sponsored the Retail Investor Protection Act, a bill that would require the Securities and Exchange Commission to be the lead regulator in writing a uniform fiduciary standard for the financial services industry.
The bill passed the House of Representatives, most recently this fall, but only with three votes from Democrats.
But more than half of Democrats in the House have voiced their concern over the DOL’s proposal in letters to Labor Secretary Thomas Perez.
In her statement, Wagner said, “The President continues to ignore over 100 Democrats in Congress who have expressed concerns with the Department of Labor’s proposed rule. Instead, this President has decided to stand with big government liberals like Sen. Elizabeth Warren.”
While the Senate has to date shown little interest in taking up the Retail Investor Protection Act, a Wagner spokesperson said the matter is a priority for Majority Leader Sen. Mitch McConnell, R-Kentucky.
“It is now more important than ever that the Senate act immediately and take up this important piece of legislation,” said Wagner in her statement.