Activity surrounding the Labor Department’s fiduciary rule continues unabated. At press time in mid-October, the Trump administration nominated Senate Finance Committee senior counsel Preston Rutledge to head Labor’s Employee Benefits Security Administration, the position held by Phyllis Borzi, architect of Labor’s fiduciary rule during the Obama administration.
If confirmed, Rutledge will be instrumental in shepherding through any change that Labor makes to its fiduciary rule. Industry officials anticipated that Labor would officially delay the fiduciary rule’s Jan. 1, 2018, effective date by 18 months by the end of October.
Rutledge’s appointment to head EBSA would “fill a leadership vacuum at that sub-agency and allow the DOL to move forward with any changes” to the fiduciary rule, said Duane Thompson, senior policy analyst at Fi360, a fiduciary education, training and technology company.
“In the meantime, DOL is very likely to move ahead with an extension of the transition period impacting the [rule's] best-interest contract exemption and other parts of the rule to July 1, 2019,” Thompson added, which “could result in a legal challenge by consumer groups.”
On the Senate Finance Committee, Rutledge’s duties include employee benefits, retirement issues, tax-exempt organizations, health tax issues, and the tax provisions of the Affordable Care Act.
Prior to joining the Finance Committee, Rutledge served as a senior tax law specialist on the headquarters staff of the Tax Exempt and Government Entities Division of the Internal Revenue Service, and as a senior technical reviewer in the Qualified Pension Plans branch of the IRS Office of Chief Counsel.
Rutledge has been in private law practice as an employee benefits counselor and ERISA litigator.
A day before Rutledge was nominated on Oct. 13, Rep. Ann Wagner’s bill to repeal the Labor’s fiduciary rule, the Protecting Advice for Small Savers Act of 2017, H.R. 3857, passed out of the House Financial Services Committee.
The bill, which passed by a vote of 34-26, now goes to the House.
Wagner, R-Mo., introduced her bill, which keeps a fiduciary rulemaking under the Securities and Exchange Commission’s jurisdiction, on Sept. 27.
Wagner’s PASS Act establishes a best-interest standard for broker-dealers and repeals Labor’s rule, “period. Full stop. And it gets the Department of Labor out of the broker-dealer space.”
Other bills like Wagner’s that aim to repeal Labor’s fiduciary rule or set new standards for investment fiduciaries have passed out of the House in recent years “only to die in the Senate,” Thompson said. “I believe this [PASS Act] is no different,” he adds, as “it is highly partisan and would face a Democratic filibuster in the Senate and likely fail.”
But SEC Chairman Jay Clayton told Wagner during testimony before the House Financial Services Committee on Oct. 3 that the agency is “working on” a fiduciary rule proposal and that “a lot of the themes” that she outlined in her PASS Act “are the themes that I have.”
Investors, Clayton said during his testimony, “should have choice — what type of account they want, what type of relationship.” There should be clarity. “I recognize that there’s not the kind of clarity that there should be in the marketplace,” he added. “There ought to be consistency with us and the Department of Labor. We can’t have asymmetric standards.”