WASHINGTON, D.C. | July 26, 2011 -
The Subcommittee on Health, Employment, Labor, and Pensions, chaired by Rep. Phil Roe, M.D. (R-TN) today held a hearing to examine a proposal by the Department of Labor to dramatically alter the long-standing fiduciary definition. Members of the committee discussed bipartisan concerns with the policy and the process surrounding this controversial proposal.
As Chairman Roe stated
at the beginning of the hearing, "For more than 35 years, regulations surrounding fiduciary responsibility have provided certainty to employers and other retirement plan sponsors... However, the Labor Department has now decided to rewrite the rules of the road."
Chairman Roe continued, "While we support looking at ways to enhance this important definition, the current proposal is an ill-conceived expansion of the fiduciary standard. It will undermine efforts by employers and service providers to educate workers on the importance of responsible retirement planning. Regrettably, the proposal may deny investment opportunities and drive up costs for the individuals it is intended to protect."
Witnesses outlined a number of flaws in the proposal that could negatively impact employers, workers, and retirees. Those flaws include:
Unknown cost to workers and retirees
"The real question is the cost to plans and their participants and the impact on their retirement savings. And while the department’s cost analysis leaves alarming gaps in what it does appear to understand or be certain about, its list of uncertainties does not even once mention IRAs." (Kenneth E. Bentsen
, Securities Industry and Financial Markets Association, 7-26-2011)
Foreclosing important investment education
"It is common today for financial institutions to provide plan participants and plan sponsors with investment education... There is great concern that the proposed regulation would sharply decrease the provision of investment education... Since it can reasonably be expected that education about investment may be considered by the recipient in making investment decisions, providers of needed education will likely restrict the information that they provide due to the chance that they might become fiduciaries for providing what they consider to be educational materials." (Kent Mason
, Davis & Harman LLP, 7-26-2011)
In response to a question regarding the impact of the proposal on low-income retirement savers who need financial education, Mason noted that the proposed rule is "actually severely counterproductive for exactly the kind of persons that you want to protect."
Failure to follow Presidential guidance
"As you know, earlier this year, the White House issued an Executive Order directing federal agencies to use 'the least burdensome tools for achieving regulatory ends,' and to 'select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits.' However, the DOL has provided no meaningful cost-benefit analysis that would satisfy the Administration’s directive." (Jeffrey Tarbell, Houlihan Lokey, 7-26-2011)
Chairman Roe outlined the best path forward for the department's proposal: "With all due respect, Assistant Secretary, if this proposal is so disruptive to our system of retirement saving, then the department needs to take a step back and start over. I would like to join my Republican and Democrat colleagues in urging the administration to do just that. Once this proposal has been set aside, I believe we can work together on policies that will strengthen the retirement security of millions of Americans."
To learn more about this hearing, click here.
# # #