The Department of Labor’s new rule to amend the definition of fiduciary on retirement advice is “legislation by rulemaking,” the former head of DOL’s Employee Benefits Security Administration told senators Wednesday, with the rule that “ultimately passed” running contrary to what Congress intended when it passed the Employee Retirement Income Security Act.
“Regulatory authority delegated to the executive branch by Congress was not intended to make federal regulators an ersatz legislative body, but to facilitate the practical implementation of laws passed by Congress,” Brad Campbell, former head of EBSA who’s now of counsel with the law firm Drinker, Biddle & Reath, told members of the U.S. Senate Committee on Homeland Security & Government Affairs.
Campbell argued during the hearing, titled “The Administrative State: An Examination of Federal Rulemaking,” that some regulators — specifically the DOL — are using the rulemaking process “to make policy and legal judgments that are properly the responsibility of Congress.”
DOL’s new fiduciary regulation, which Campbell said is likely “the most sweeping change” to retirement savings and financial regulation since the 401(k), “is entirely the product of the Department’s own initiative.”
Congressional direction, he continued, “was for a fiduciary standard to be handled by the Securities and Exchange Commission” through Section 913 of the Dodd-Frank Act.
Congress “did not intend” for DOL “to become a primary regulator of the conduct and compensation of financial advisors to individual retirement accounts,” Campbell said, nor did Congress intend for the “unique fiduciary standard of care applicable to employee benefit plans under ERISA to apply to IRAs.”
Lawmakers, Campbell continued, created ERISA plans and IRAs “at the same time, and affirmatively chose NOT to apply the ERISA fiduciary standard to IRAs. The reason is clear — in an ERISA plan, a fiduciary makes many decisions for me, and thus a fiduciary standard rooted in trust law strictly governs those decisions over which I have no control. By contrast, in an IRA, I make my own decisions, so Congress treated IRAs much as it treated other types of investment vehicles, and relied on the extensive network of federal and state financial regulators and laws already protecting investors.” Congress, he continued, “created a new private right of action and legal remedies for ERISA plans, but did not create a special cause of action for IRAs.”
Sen. Ron Johnson, R-Wis., chairman of the committee, said in his opening remarks at the hearing that DOL’s rule “will likely increase compliance costs for advisors, driving up the price of their services and decreasing access to advice for low- and middle-income investors. In drafting this rule, the Labor Department ignored concerns from Securities and Exchange Commission and Treasury Department staff.”