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.”