Marking the one-year anniversary of the 5th Circuit Court of Appeals’ Order vacating the Department of Labor’s fiduciary rule, key Democratic members of Congress have asked the Government Accountability Office to examine how the financial services industry has responded since then.
In their letter to GAO, Sen. Patty Murray (D-WA), ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Rep. Bobby Scott (D-VA), chairman of the House Committee on Education and Labor, ask the agency to examine how the fallout from the DOL’s decision not to defend its fiduciary standard after the 5th Circuit struck the rule down has affected financial services firms and individuals alike.
“In the past year, DOL appears to have done little, if anything, to warn retirement savers that they are now vulnerable to professionals who, according to DOL, have no obligation to put their clients’ interest before their own,” Murray and Scott write.
The letter explains that many firms took considerable action to comply in advance and revised their operations significantly, in some cases spending millions of dollars. But instead of appealing the ruling, the lawmakers further note that the DOL issued a Field Assistance Bulletin (FAB) to help industry understand its obligations and to communicate the DOL’s decision not to enforce the rule and its associated prohibited transaction exemptions.
And while acknowledging that the SEC’s Reg BI does not immediately implicate retirement plans, Murray and Scott contend that statements by Labor Secretary Alexander Acosta that the DOL will collaborate with the SEC may only “exacerbate the confusion.”
Among the questions the lawmakers ask the GAO to address:
- To what degree did financial services firms, plan administrators and financial advisors serving defined contribution plans, 401(k) plan participants and IRA investors assume a fiduciary role in response to the 2016 rule?
- For those firms that initiated efforts to comply with the 2016 rule prior to the 5th Circuit’s decision, how did their product line and compensation structure change during this period, and what were their aggregate compliance costs?
- To what extent have those entities who assumed a fiduciary role continued to act (or not act) as fiduciaries after the rule was vacated in 2018 and why did these entities choose their specific path?
- For the entities who continued to assume a fiduciary role after the rule was vacated and those that did not, to what extent, if any, has the rule being vacated affected their product line, sales and revenue, compensation structure, and compliance costs?
- To what extent will the SEC’s Reg BI cover advice to retirement savers and what protections will it extend to retirement savers and plan participants generally?
Murray and Scott’s request comes as other groups have separately decried the SEC’s rulemaking package, signaling a looming legal battle may be on the horizon.
For its part, the DOL recently shed some light on its next steps on a fiduciary rule revamp. The federal government’s updated Spring 2019 unified regulatory agenda confirms that the agency has set a target date of December 2019 to issue a Notice of Proposed Rulemaking. The agenda simply states that the agency is considering its regulatory options in light of the 5th Circuit ruling.