Biden Fills Out Economic Team, Picking Boston Mayor to Head Labor

At press time in early January, President-elect Joe Biden and Vice President-elect Kamala Harris completed filling out their economic team — which included announcing their plans to nominate Boston Mayor Marty Walsh, a former top union leader, to head the Labor Department.

If confirmed, a more stringent Labor fiduciary prohibited transaction exemption to align with the Securities and Exchange Commission’s Regulation Best Interest is likely on tap under Walsh.

With a Democratic sweep in the Senate, House and executive branch, Biden “is likely to get all of his Cabinet nominations approved,” Greg Valliere, chief U.S. strategist for AGF Investments, said in his early January email briefing, with the possible exception of Neera Tanden to head the Office of Management and Budget.

Tanden “has Democratic detractors,” Valliere said. “But Biden will not have to spend political capital on his nominations, and he now has the upper hand on judicial appointments.”

Biden also said on Jan. 8 that he planned to “lay the groundwork” for the next COVID economic relief package during the week of Jan. 11. The $900 billion bipartisan COVID relief package passed in December “is an important step, but just a down payment,” Biden said.

All eyes will also be peeled on Biden’s choice to fill the SEC chair seat.

Names being floated to replace SEC Chairman Jay Clayton under Biden include Gary Gensler, former chairman of the Commodity Futures Trading Commission, and Preet Bharara, the U.S. attorney for the Southern District of New York under former President Barack Obama.

Clayton left the agency on Dec. 22. SEC Commissioner Elad Roisman, a Republican, was named interim SEC chair.

Under the Biden administration, “I don’t expect the SEC to scrap Reg BI and start from scratch,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “I do expect [the SEC under Biden] to move relatively quickly to clarify the meaning of best interest, and to do so in a way that represents a clear enhancement over suitability, and to clarify how it determines whether policies and procedures mitigate conflicts of interest.”

Labor Fiduciary PTE

Walsh, a Democrat, was sworn in to serve a second term on Jan.1, 2018. He was previously a member of the Massachusetts House of Representatives, serving in that office from 1997 until 2014 and representing the Thirteenth Suffolk district.

If confirmed as Labor Secretary, all eyes will be on whether Walsh decides to amend or scrap Labor’s fiduciary prohibited transaction exemption to align with the Securities and Exchange Commission’s Regulation Best Interest.

Industry officials anticipate that the Biden administration will pull back Labor’s fiduciary PTE to align with Reg BI and toughen it.

Fred Reish, partner at Faegre Drinker in Los Angeles, said that Walsh “as might be expected,…is pro-labor and fairly liberal. Based on that, I imagine his views of a strong fiduciary standard would be favorable. As a former labor leader, he is also likely to be deeply interested in solving the underfunding issues affecting many multi-employer pension plans.”

Roper said that the Labor Department under the Biden administration will have to address two issues regarding Labor’s fiduciary PTE.

First, “what to do about the PTE and what to do about the definition of fiduciary investment advice,” Roper said. “In both cases, it would take notice and comment rulemaking to reverse or revise the rules, since they were finalized before January 20. And I would expect the DOL to do just that.”

Steve Saxon, partner at Groom Law Group in Washington, said that Walsh being picked “will not, in and of itself, impact” the fiduciary advice PTE. “That doesn’t mean the new DOL won’t review and likely revise the PTE. …Walsh should be focused immediately on unemployment and dealing with the pandemic.”

According to his official bio, since taking office, “Walsh has focused on strengthening Boston’s schools, adding hundreds of high-quality pre-kindergarten seats, funding extended learning time and advanced curriculum at more schools, and securing tuition-free community college for Boston Public Schools graduates.”

As to executive actions under a Biden administration, added Andy Friedman, principal and founder of The Washington Update, “it is fair to expect Treasury to shine a harsher light on the financial services industry. Banks could face tighter regulation and more stringent supervision, including an expansion of the Volcker Rule, tougher stress tests, and greater scrutiny of their actions.”

The Labor Department “could take anti-business actions as well,” Friedman said. “We could see expanded eligibility for overtime pay and an enhanced ability of employees to unionize and enforce labor rights.”

As to the Labor Department fiduciary prohibited transaction exemption to align with the SEC’s Reg BI, “we don’t know how the new Labor secretary will view the DOL fiduciary rule,” Friedman said. “The new regime there might simply leave the rule as is. Or it could decide to reconsider whether the rule is sufficiently strict, particularly given criticism by investor rights organizations that view the rule is too lax.”

Rep. Virginia Foxx, R-NC, Republican Leader of the Committee on Education and Labor, said in an early January statement that Walsh’s “background in organized labor signals that he will work to deliver on left-wing campaign promises including a $15 mandated minimum wage, punitive one-size-fits-all regulations, forced unionization of small businesses, and eliminating the independent contractor model, among many others.”

Rep. Bobby Scott, D-Va., chairman of the Committee on Education and Labor, said in a statement that with Walsh’s experience, “I am confident that he will restore the mission of the Department to ensure that Americans can obtain meaningful employment, fair pay, a safe workplace, and a dignified retirement.”

Added Scott: “Our nation continues to endure a deep economic crisis, and the absence of federal leadership has allowed a public health emergency to balloon into an economic crisis of historic proportions.”

In the short term, investors “will be pleased by the prospect of greater stimulus,” Friedman said. “Later, though, they will fear a tax increase, which the Democrats could pass without regard to the filibuster.”

The filibuster is important, Valliere explained, “because it will allow the Democrats to pass a major package with only 50 votes if it’s part of a budget-related bill — maybe twice in 2021, some sources say, once for another stimulus, once for tax hikes. But non-budget bills on issues like a Green New Deal probably will languish.”

More concerning to the markets, Friedman said, “would be a move by a Democratic majority to eliminate the filibuster itself. Doing so would allow Congress to pass a broad array of Democratic initiatives, many of which are anti-business. I don’t think the filibuster will be eliminated, but even an aborted effort to do so could scare the market.”

Valliere added that there’s a “much better chance that another stimulus bill will pass later this winter as COVID rages; the $900 billion package two weeks ago was simply a ‘down payment,’ as Biden stated.”

Biden “probably will get more than $1 trillion in the next bill, a plus for the economy (but a concern for the bond market, where the 10-year Treasury yield topped 1% overnight),” Valliere said.

Higher taxes are coming, Valliere warned, the “only issue is when and by how much.”

Washington Bureau Chief Melanie Waddell can be reached at mwaddell@alm.com.