With Eugene Scalia sworn in as the new Secretary of Labor in early October, industry officials and attorneys are anticipating the release — maybe this month — of a Labor Department fiduciary rule and prognosticating what such a rule would look like.
Scalia told Senate lawmakers during his confirmation hearing that he’d seek advice from the in-house ethics counsel at Labor on whether he should recuse himself from helping to craft a new fiduciary rule.
If Scalia were to be required to recuse himself because he helped torpedo the Obama-era fiduciary rule, “political decisions regarding the final rule” would likely fall to Patrick Pizzella, the deputy labor secretary who has been the acting head since former Labor Secretary Alexander Acosta stepped down earlier this year, notes George Michael Gerstein, a partner with Stradley Ronon in Washington.
Shortly, “we may see the DOL issue new guidance on rollovers (a significant and uncertain issue in the wake of the [previous] fiduciary rule’s demise) and, in all likelihood, a proposed class exemption applicable to broker-dealers, which, at its heart, could condition relief on adherence to new Regulation Best Interest,” Gerstein said in a recent legal brief.
Gerstein added that, “We do not anticipate the DOL to reformulate the ways in which one becomes an investment advice fiduciary under ERISA (i.e., expanding the ways in which one becomes a fiduciary),” which the Obama-era fiduciary rule did.
Rachel Mondi, the deputy solicitor at Labor who was a protégé of Scalia’s during his time at Gibson Dunn, was named chief of staff in late September. Mondi is said to be a point person that has been helping devise Labor’s new fiduciary rule.
Mondi previously served as a professional staff member and counsel to the House Education and Workforce Committee under Chairwoman Virginia Foxx, R-NC. Foxx was a staunch DOL fiduciary rule opponent.
Scalia said during his swearing in ceremony in that he’s “deeply honored to have the opportunity to serve in President Trump’s Administration and to lead this great Department where I worked nearly 20 years ago as Solicitor of Labor.”
Labor, Scalia continued, “has important responsibilities to further its mission and implement the President’s agenda to protect and strengthen the American workforce. I am excited to get to work.”
Attorneys at Groom Law Group wrote in a recent legal brief that in addition to understanding the SEC advice-standards package, which includes Reg BI, broker-dealers and investment advisors “may want to begin considering the terms that would be acceptable in DOL’s alignment package.”
Groom attorneys Kevin Walsh and George Sepsakosis agreed that a rule from Labor would likely come in the fall and wrote that after the release of Labor’s rule, “there will likely be an opportunity to submit comments before the alignment proposal is finalized.”
Many in the industry would like clarity on how Reg BI “and the new interpretation of solely incidental will impact ERISA fiduciary status,” the attorneys wrote. “The DOL can also provide clarity that the SEC did not around preemption over state rules,” they noted.
The division responsible for drafting a new Labor fiduciary rule, the Employee Benefits Security Administration, was also scheduled to be reorganized on Oct. 1.
Lawmakers urged EBSA, however, to reconsider.
According to a Aug. 27 letter sent to EBSA employees by the unit’s head, Preston Rutledge, the move is an expansion and reorganization of EBSA’s leadership structure.
“The new structure will provide expanded opportunity for career advancement, give the Regional Offices a greater voice in the National Office, and help ensure that enforcement activities are consistent nationwide,” Rutledge wrote.
But Sen. Patty Murray, D-Wash., ranking member of the Senate Health, Education, Labor and Pensions Committee, and Rep. Bobby Scott, D-Va., chairman of the House Committee on Education and Labor, asked Rutledge to delay the reorganization and to explain the rationale for the move.
“The proposed reorganization appears to be a meaningful structural change from the status quo, shifting authorities to EBSA’s politically appointed deputy and creating a new director position to oversee regional offices,” the lawmakers wrote.
“We have questions about the need and basis for this proposed reorganization and whether EBSA’s vital mission will be impaired,” the lawmakers wrote.
Also forthcoming from Labor, according to Gerstein of Stradley Ronan is new guidance from the DOL on proxy voting. President Donald Trump issued an Executive Order in April that, in part, required Labor to examine if new guidance in this area was necessary, according to Gerstein.
“The DOL could decline to issue new guidance, since Field Assistance Bulletin 2018-01 addressed proxy voting,” Gerstein said.
Washington Bureau Chief Melanie Waddell can be reached at email@example.com.