DOL's Borzi on the fiduciary rule: There is no going back

Phyllis C. Borzi got the job she “always wanted” when she took over leadership of the Labor Department's Employee Benefits Security Administration in 2009, but she credits her previous roles for preparing her well.

Those posts helped her understand the need to see complex issues from all vantage points, Ms. Borzi said in an interview with Pensions & Investments. And the experience gave her the resolution not to back down during last year's update of the fiduciary rule, a measure that brought her praise as well as criticism.

“I've been in every sector,” Ms. Borzi said. “I worked on the Hill where we got to write the laws, and then had to rely on the federal agencies to implement them. I was always very vocal about making sure that the people who were in charge of implementing them balanced the protections — for the workers, the participants and the retirees — against costs,” said Ms. Borzi, whose tenure will end after the White House changes hands Jan. 20.

A belief in the value of data helped in the nurturing of what she sees as one her biggest achievements, the conflict-of-interest rule. “One of the things I am most proud of in the conflict-of-interest rule is the economic analysis.”

That rule, also known as the fiduciary standard, is slated to take effect in April. Ms. Borzi appreciates the industry participants who were willing to work with DOL officials during rule-making, and even the critics. “We actually learned a lot more from the people who opposed us,” she said.

Those critics “would have been a heck of a lot better off if they hadn't blocked our 2010 (rule that was later withdrawn), because by the time we got to 2015 we were smarter and more targeted, and we figured out how to simplify the requirements so that the key elements were still there.

“We figured out how to do that, I absolutely believe, in a more balanced way and in a way that people of goodwill in the industry can comply with. They are doing it in good faith … and that's the way regulation should work.”

Her 16 years as a research professor — at George Washington University Medical Center's School of Public Health and Health Services — came in handy when it came to allocating Department of Labor resources at EBSA. “I really am a believer in data, I believe in evidence-based decision-making, and so I'd like to think that part of my legacy is a better focus on research and data as a way to evaluate the problems and the alternatives,” Ms. Borzi said.

“Policymakers never have the data in order to make intelligent decisions. You can't regulate, you can't legislate based on your perception of what the world is like or what five lobbyists tell you. I think it's an ongoing struggle,” said Ms. Borzi.

In addition to fighting for more research resources, Ms. Borzi and her EBSA team, which she called “fabulous,” set out to leverage those resources in enforcement to see “where we could get the biggest bang for our buck. We spent a lot more time looking at service providers rather than individual plans because a service provider can affect hundreds, if not thousands of plans and possibly millions of participants.

“Our enforcement team did two very important things. They worked with our data people, with the economists (and) the financial analysts to create better metrics for targeting” audits, and resisting the pressure to conduct random audits.

“Also we coupled that focus with a more concerted effort to get voluntary compliance. I used to say to my law school students that litigation is a failure, litigation is the last resort. We've been intent on trying to focus the cases in which we can have the greatest impact and then trying to settle them rather than litigating. We've had mixed results,” she said.

Before being sworn in to the EBSA post in July 2009, Ms. Borzi experienced the politics of benefit issues when she helped newly elected President Barack Obama's transition team set priorities for the EBSA, and while serving on Hillary Rodham Clinton's Presidential Task Force on Health Care Reform in 1993.

She saw how members of Congress deal with issues in her role as pension and employee benefit counsel for the House Education and Labor Committee's Labor-Management Relations Subcommittee from 1979 to 1995. And she has seen it from the plan sponsor's perspective, as a lawyer in private practice dealing with compliance issues.

One lesson she learned about regulating benefits by being on the inside was the importance of public input. “Some people think the public notice and comment process is a pain; I actually think it's very positive. What my friends in the private sector don't realize, and I guess I didn't realize until I came here, was how critical this is. So many people wait until the end (of a rule-making process) and then start whining.”

Even if current efforts to repeal or delay the fiduciary rule succeed, there is no going back, Ms. Borzi said. “I don't know what's going to the happen to the rule per se, but I think our activity in this area has been a catalyst for where the enlightened people in the industry were going and I don't think there's any stepping back from a best-interest standard.

“People have now embraced it — many people, not everybody — and the industry leaders have been working hard to implement it,” she said. “Once people become aware of it and ask those questions, the marketplace will take care of itself,” she said.

Ms. Borzi does not consider herself an ideologue, but says, “I have a strong sense of fairness. Whenever I see injustice I feel I have to get in and do it. If I see something that needs to be done and I think there's a reasonable way to do it and that it's possible to gain consensus, then that's where I'll put my efforts. I picked things where I thought we could make a difference.”

She is not sure Congress “got it right” when drafting or occasionally updating the Employee Retirement Income Security Act of 1974, but she still calls the law “remarkable.''

“The elements that were part of the original structure are all the elements you want. You want some basic fairness standards, you want consumer protections, and you want to be sure that the people who are looking over the money have a strong fiduciary responsibility.”

The jury is still out, she said, on how the movement by some states and cities to create their own private-sector retirement approaches will change things. “I have friends who are dismayed that we have worked in this direction because for many decades I have been the defender of ERISA pre-emption. What I say to them is, when you look at where we were then and where we are now, we haven't moved the needle.

“We've had a gazillion new tax incentives, we've loosened the law to reduce the burden on employers … and nothing has changed. Now, the vast majority of workers are on their own.

“I don't think that the people who drafted ERISA thought we were going to wind up with a system in which everybody had to be their own financial whiz. This financial literacy question is one of the most vexing thorny questions.”

That's one item she didn't have time to address before her time at the agency comes to a close.

Her plan now? “I'm going to sleep for a couple of months,” she said.