WASHINGTON — The Senate on Tuesday joined the House in supporting a resolution that would end the Department of Labor’s new fiduciary standard rule. The vote was 56-41.
However, the resolution was generally seen as an exercise in political gymnastics as it lacks the 60 votes needed in the Senate to overcome what President Obama said in April he would veto if presented to him.
A more substantive challenge is lurking, however. The American Council of Life Insurers is expected to seek an injunction in the next week or so that would block implementation of the rule pending judicial scrutiny.
The rule is effective June 7 even though total compliance is not required until April 2018.
Officials at the ACLI would not comment on Tuesday. But Politico and other publications have reported that the ACLI set up a task force months ago to study the issue. According to sources, the ACLI’s lawyer is David Ogden at WilmerHale in Washington, D.C. He served as deputy attorney general in the Obama administration from 2009 to 2010 and formerly clerked for Supreme Court Justice Harry A. Blackmun. One industry attorney said, “He is a formidable lawyer.”
The Senate resolution was sponsored by Sens. Johnny Isakson, R-Ga., and Lamar Alexander, R-Tenn. During the debate, Isakson said the rule was “a solution in search of a problem.” Alexander added that, “we should call this the ‘Only the Rich Retire’ rule.”
Sen. Harry Reid, D-Nev., Senate minority leader, defended the rule, saying that there was nothing wrong with “a rule that would require investment advisors to act in the best interest of their investors.”
The ACLI sent a letter to the Senate Tuesday urging passage of the resolution. Dirk Kempthorne, ACLI president and CEO, noted in the letter that, throughout the notice-and-comment process the DOL used in formulating the rule, “the ACLI has expressed deep concerns that the DOL proposal would impose significant harm on lower and middle income retirement investors and limit retirement savers choice of financial products, and access to financial guidance.”
The ACLI did note that the DOL made technical changes to selected operational requirements. The letter said, however, that the final rule retained other provisions and made a number of substantive changes “that will make compliance with the rule and its exemptions exceedingly difficult.
“This will lead to substantial uncertainty,” Kempthorne said. Significantly, he added, “that uncertainty is paired with the increased liability associated with providing advice and products to retirement savers.”
He added that, “American consumers need more advice, more product access, and more retirement security; not less.”
Jules O. Gaudreau Jr., president of the National Association of Insurance and Financial Advisors, said during House deliberation of the resolution that while the final rule contains a number of changes from the proposal, “We remain concerned that the practical application of the complex rule will be adverse to many retirement savers.”
Joe Valenti, director of Consumer Finance at the Center for American Progress, a progressive think tank, was highly critical of the vote, saying that, “the Senate voted to side with conflicted retirement advisers instead of American savers and retirees — just as the House did last month — to the tune of $17 billion per year in higher fees.”
He called it a “raw deal for families seeking to rebound from the Great Recession who expect financial institutions and government to be accountable for protecting their interests.”
As to the ACLI’s likely decision to try to stop the rule pending a judicial challenge, C. Frederick Reish of Drinker Biddle & Reath in Los Angeles, said that stopping implementation of the rule would be a steep climb.
Reish is a partner in Drinker Biddle’s employee benefits & executive compensation practice group, chair of its Financial Services ERISA Team and chair of the Retirement Income Team.
“It is possible, but extremely difficult, to persuade a court to enjoin the implementation and enforcement of a regulation.”
He said it is necessary to keep in mind that it is the job of the administration to issue and enforce regulations. ”In other words, a judge would have to conclude that the DOL had so clearly exceeded its authority in ‘doing its job’,” that is, the government was abusing its authority,” Reish said.
“That is an uphill climb and an extraordinary remedy,” Reish said.
While that has happened on a few occasions in the past — usually where the regulatory agency didn’t properly investigate and document the need for, and impact of, the regulation — the Department of Labor has been aware of this impending lawsuit for a year, and has carefully documented its analysis and authority in anticipation of the litigation.
“The preamble and analysis clearly were written in anticipation of litigation,” Reish said. “So an injunction is possible, but not likely.”
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