Labor secretary's job might be new, but his plate is full

Thomas Perez, the new secretary of labor, will have little time to make an immediate imprint on retirement issues as he inherits the already packed regulatory agenda of the Employee Benefits Security Administration, including a controversial new fiduciary rule.

“It's great to have a permanent secretary in place, but it shouldn't immediately have a major impact on the regulatory agenda related to qualified plans,” said Ross Bremen, a partner with Cambridge, Mass.-based investment consulting firm NEPC LLC. Mr. Bremen chairs the public policy committee of the Defined Contribution Institutional Investment Association, a trade association of service providers to defined contribution plans.

“We don't know that much about his policies,” said James Klein, president of the American Benefits Council in Washington, which represents employers and service providers. “He has a very strong and capable assistant secretary (for EBSA, Phyllis Borzi), and I'd expect that the policies will continue.”

In contrast to Ms. Borzi, who is considered an outspoken advocate for plan participants and less of a good listener to industry concerns, Mr. Perez's reputation is that of a consensus builder in previous jobs, including assistant U.S. attorney general for civil rights and Maryland's secretary of labor from 2007 to 2009. At his White House nomination ceremony in March, Mr. Perez said that over his career, “I have learned that true progress is possible if you keep an open mind, listen to all sides, and focus on results.”

The difference in styles has yet to be tested in his new job at the Labor Department, where “the push-button issue is still the definition of fiduciary,” said Mr. Klein.

Mr. Perez and Ms. Borzi declined to be interviewed, but DOL officials say they are on track for an October debut of a proposed rule to update the definition of the term fiduciary, which is now officially called the “conflict of interest rule for investment advice.” An earlier proposal was sent back to the drawing board in 2011 after industry protests. The revised proposal has not been sent to the Office of Management and Budget for review, which is required before the proposal is made public. OMB has 90 days for its review.

Mindful of Ms. Borzi's determination to get the rule published, retirement plan service providers are waiting to see how the revised rule will address exemptions for prohibited transactions and are hoping that Mr. Perez will pay attention as it goes through the rulemaking process. “Prohibited transactions will be key,” said Kent Mason, an attorney with Davis & Harman LLP, Washington, who represents retirement plan sponsors and service providers. “We hope he would come down in favor of expanding access to investment assistance, as opposed to restricting it.”

The heightened sensitivity of the fiduciary rule was apparent at Mr. Perez's congressional confirmation hearings. Although many of the questions Mr. Perez faced concerned his handling of civil rights cases at the Department of Labor and as Maryland's secretary of labor, several senators repeatedly asked about the fiduciary rule, prompting Mr. Perez to promise to “dig deeper.”

During one hearing before the Senate Health, Education, Labor and Pensions Committee, Mr. Perez was cautioned by Sen. Johnny Isakson, R-Ga., to “do everything you can not to perpetuate a rule ... that would restrict the right for the average American ... to get investment advice.” Mr. Perez assured committee members he wanted to “listen and learn more about the concerns.” On July 23, his first day on the new job, Mr. Perez repeated his preference for “collaboration, consensus-building and pragmatic problem-solving” on his blog.

“He said he would have an open mind,” noted Kathryn Ricard, vice president of retirement policy with the ERISA Industry Committee in Washington, which represents corporations on benefits issues. “From our perspective it's probably a positive thing that those conversations occurred” before he was confirmed.

The resistance to a new fiduciary standard has not gone away, said Brian H. Graff, executive director and CEO of the American Society of Pension Professionals & Actuaries, Arlington, Va. “We have grave concerns about the impact that the regulation would have on the marketplace and its ability to allow access to investment advice. There continues to be concern from members of Congress on a bipartisan basis.”

Supporters of a new rule are also on alert. “We think it's outrageous that the industry is doing everything it can to block the DOL from doing what it's supposed to do. We hope the secretary understands that this process should go forward,” said Karen Friedman, policy director for the Pension Rights Center in Washington. “All the department is trying to do is modernize a rule that is so old that 401(k)s weren't even invented (when the rule was first issued).”

There is also the practical matter of how much EBSA officials can get to in the coming months, with an agenda that includes guidelines for benefit statements, lifetime income projections and fee-disclosure regulations for 401(k) service providers. Those, plus implementation of the Affordable Care Act, make a debut of the fiduciary proposal unlikely soon, many said.

“Washington is a very fluid environment,” noted Mr. Bremen of NEPC. Whenever the revised rule does appear, said Mr. Graff, “that's when the debate begins in earnest.”

David Kaleda, a fiduciary expert and partner with the Groom Law Group in Washington, noted that even if DOL officials make their fall deadline for the fiduciary rule proposal, “final implementation is not going to happen right away.” He points to fee-disclosure regulations first proposed in December 2007 that were finally published in February 2012 and made effective in July. The comment period for the new proposal also will take time. Another complication is the Securities and Exchange Commission's work on its own fiduciary standard, which has some critics calling for better coordination among agencies.

With those regulatory speed bumps, EBSA officials are likely to look for enforcement opportunities to discourage fiduciary misbehavior, said Mr. Kaleda. He and others expect the scope of those investigations to widen beyond sponsors to include more service providers. “They've been very clear that they consider enforcement to be very important,” said one business lobbyist who declined to be identified.

Mr. Perez as secretary of labor is also chairman of the board of the Pension Benefit Guaranty Corp., which has its own pressing financial problems. During his confirmation hearings, Mr. Perez said he looked forward to working with legislators and stakeholders to assure the PBGC's financial viability.

Given his background as Maryland's top labor official, business lobbyists expect Mr. Perez's priorities to be traditional labor issues like worker misclassification, affirmative action and unemployment challenges. Mr. Klein of the American Benefits Council recalls the joke in benefit administration circles that every new labor secretary comes in pledging to make retirement security a priority. “Then they find out how complex ERISA is,” said Mr. Klein, “and they decide to focus on workforce training.”