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GOP leaders support legislative alternatives to the upcoming rule
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Department of Labor (DOL) Secretary Thomas Perez told lawmakers last week that his agency will soon release a controversial final rule to raise investment advice standards for retirement accounts.
“We hope to bring it to conclusion … sometime in the near future,” Perez said during
a hearing before the House Education and the Workforce Committee on March 15. Some interpreted the remarks as signaling the rule will likely be finalized in April.
proposed conflict-of-interest rule, issued in April 2015, puts constraints on professionals who provide investment advice to participants in 401(k) and similar workplace plans, and to employers that sponsor these plans. The rule would require advisors to only offer advice that can be shown to be in their clients’ “best interest” and to disclose any potential conflicts of interest under the “fiduciary standard.”
Currently, many retirement plan advisors associated with mutual fund and brokerage firms that administer 401(k) and similar plans are held to a “suitability” standard, under which they can recommend investment products that are deemed to be broadly suitable for their clients but that may reward the advisors more than competing, lower-fee investments.
Opponents of the DOL’s rule, including many financial services firms, say the regulation would increase the cost of providing investment advice to plan participants, since advisers would need to be reimbursed, in virtually all cases, by flat-fee payments rather than being compensated through commissions or mutual fund revenue-sharing payments, for instance. That could result in account holders losing access to advice they currently receive as part of bundled plan services from firms that administer workplace retirement plans.
Regarding employers, as plan sponsors they would be responsible for ensuring that plan investment advice they receive, or advice they make available to participants, is provided by an advisor adhering to the fiduciary standard.
A Legislative Alternative
In an exchange with Perez, Rep. Phil Roe (R-Tenn.) said he was “disappointed that the department has publicly opposed the bipartisan
Affordable Retirement Advice Protection Act and its companion,
the SAVERS [Strengthening Access to Valuable Education and Retirement Support] Act—legislation introduced last February by opponents of the DOL’s rule. These bills would require financial advisors to serve their clients' best interests but would allow more flexibility regarding how advisors are paid for their services, sponsors of the legislation said.
“Meaning no disrespect to Congressman Roe … I actually think these bills move the status quo backward in material respects,” Perez said. “We need to move forward.”
Committee Chairman John Kline (R-Minn.) told Perez, “Mr. Secretary, I strongly encourage you to take a step back and build bipartisan consensus in these and other important areas.”
Multiemployer Plan Solvency
On another retirement plan matter, that of distressed and underfunded union-managed multiemployer pension plans, Kline noted that Perez had “played an integral role in our efforts to reform the multiemployer pension system,” and he pressed the secretary to commit to advancing additional reforms that would “modernize the system for future generations of workers and retirees.”
Perez replied that “the multiemployer pension system … is in the red in a big way. We recognize that there are many tough decisions to be made.”
At the end of 2014,
legislation was enacted to let severely distressed multiemployer pensions reduce benefits paid to retirees, although issues around multiemployer plan solvency continue to raise concerns.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Follow me on Twitter.
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