Congressional Democrats are not giving up their campaign to put the brakes on the Department of Labor's fiduciary rule and a proposed exemption for investment advice.
On June 29, the Department of Labor unveiled a proposed prohibited transaction exemption that would permit investment advice fiduciaries to receive compensation for their advice. The proposed exemption would include fiduciary investment advice to roll over a participant's account in an employee benefit plan to an individual retirement account and other similar types of rollover recommendations.
Without an exemption, the Employee Retirement Income Security Act prohibits fiduciaries from self-dealing that would lead to additional compensation.
The proposal came on the eve of a related SEC best-interest standard taking effect.
Sen. Patty Murray, D-Wash., ranking member on the Health, Education, Labor and Pensions Committee, asked the Department of Labor's Employee Benefits Security Administration, to hold public hearings similar to those held for a previous fiduciary rule that was later vacated by the courts. Ms. Murray and House Education and Labor Committee Chairman Bobby Scott, D-Va., also asked Labor Secretary Eugene Scalia to extend the comment period, which is now closed.
Both requests were denied.
A letter sent Thursday to Mr. Scalia by 29 congressional Democrats warned that the proposal "would move the nation backwards by reinstating a broken status quo that allows financial advisers to evade their fiduciary duties and denying retirement savers meaningful remedies when they have been harmed."
The members also criticized Labor Department officials for rushing through the rule-making process, with an "unusually short" 30-day comment period, and argued that ERISA prohibits granting of such exemptions without an opportunity for a hearing.
In March 2018, the 5th U.S. Circuit Court of Appeals in New Orleans vacated an Obama-era fiduciary rule requiring brokers to act in the best interests of their clients in retirement accounts. The court ruled that it represented regulatory overreach, and the Department of Justice, on behalf of the Laobr Department, did not file a motion to appeal the decision; it died in court on June 21, 2018. As a result, the current Department of Labor reinstated a 1975 five-part test that critics complain allows for conflicted advice.
The Labor Department "squandered the opportunity" to improve the rule by reinstating the five-part test, the Democrats said.
Signers included Ms. Murray, Mr. Scott, House Financial Services Committee Chairwoman Maxine Waters of California, Senate Banking Committee ranking member Sherrod Brown of Ohio, and Senate Finance Committee ranking member Ron Wyden of Oregon.
