Retirement plan service providers are urging federal lawmakers to kill provisions in financial industry reform bills that would subject investment consultants, record keepers and other firms that provide administrative services to defined benefit and defined contribution plans to regulation by a new consumer protection agency.
Lobbyists are concerned because a massive financial industry reform bill approved by the House in December contained a provision to create the new independent watchdog, the Consumer Financial Protection Agency.
As approved, the House bill specifically bars the CFPA from regulating DB or DC plans and their sponsors directly. But it clears the way for the new agency to regulate consultants, record keepers and those offering custodial, trust and investment-related services.
The issue is on the front burner now because the Senate is expected to begin floor debate this month on its own version of financial industry reform. The bill, approved last month by the Senate Banking Committee, includes a provision that would create a similar watchdog agency —the Consumer Financial Protection Board — within the Federal Reserve System. The CFPB also would be able to regulate DB and DC plan service providers, but only at the joint request of the Labor Department and Treasury Department.
Lobbyists hope the Senate version is revised to exclude service providers from the new agency's authority, then fight to include that carve-out when Senate and House leaders work out differences between their bills.
“We're optimistic if we get good language in the Senate, we can prevail in the House,” said Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries, Arlington, Va. “So it's important that we get the best language we can in the Senate.”
In an e-mailed statement, Jason Hammersla, a spokesman for the American Benefits Council, Washington, said: “The council supports a broad and clear exemption of plan fiduciaries and service providers from CFPB jurisdiction.”
Pension industry lobbyists said one apparent rationale for giving any consumer watchdog power over retirement plan service providers is that the DOL doesn't have that authority — unless the service providers are serving as ERISA fiduciaries. Still, some lobbyists contend the Labor Department has at least an indirect hook through plan fiduciaries subject to DOL oversight.
But if lawmakers want to subject service providers to additional regulation, the lobbyists contend it would make more sense to expand the regulatory authority of the DOL rather than assign it to a new, untested and unschooled consumer watchdog.
“Even if there are regulatory gaps, and it's not clear that there are, the logical course would seem to be to provide additional authority to the existing regulators,” said James Delaplane Jr., an ERISA attorney at Davis & Harman LLP, Washington who is coordinating some of the lobbying for plan service providers on the issue.
Said ASPPA's Mr. Graff: “You might as well give us over to the Department of Transportation. They know just as much about retirement plans as this new agency is going to.”
DOL executives had no comment, said spokeswoman Gloria Della.
Another key argument by lobbyists is that subjecting service providers to new regulation would impose additional costs on plans. “Compliance with new CFPB regulations would undoubtedly increase costs for benefit plan service providers, but with no clear gain,” Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, said in an e-mailed response to questions. “Unfortunately, it will be the participants and plan sponsors that will ultimately bear these higher costs.”
The mutual fund industry's Investment Company Institute, Washington, also opposes regulation by the CFPB. “Our primary interest continues to be to ensure that the final outcome will maintain strong investor protections for America's nearly 90 million mutual fund investors,” spokeswoman Rachel McTague wrote in an e-mailed statement.