Department of Labor officials have been busy in recent months pumping out rule proposals with major potential impacts on retirement plans, but if Joe Biden moves into the White House in January, rules that aren't finalized and in effect will likely be scrapped or at least paused temporarily.
"It's pretty commonplace for an administration that comes in to essentially to put a hold on any regulations that aren't final and effective," said Michael P. Kreps, Washington-based principal at Groom Law Group. "If the rule is not effective, they put a hold on it and they review it and they figure out what they want to do with it."
Over the last few months, the Labor Department has published guidance that green lights defined contribution plan sponsors to include certain private equity strategies into diversified investment options, such as target-date, target-risk or balanced funds, while complying with ERISA. It has also unveiled rule proposals that include stipulating that ERISA plan fiduciaries cannot invest in ESG vehicles that sacrifice investment returns or take on additional risk; permitting ERISA-governed fiduciaries to only cast proxy votes when they would have an economic impact on the retirement plan; and a prohibited transaction exemption that would permit investment advice fiduciaries to receive compensation for their advice and to engage in certain principal transactions that are now forbidden.
That last proposal, which was announced June 29, would require investment advice fiduciaries relying on the exemption to provide advice in the best interest of retirement investors. The standard would be interpreted and applied consistent with the Securities and Exchange Commission's best-interest standard, known as Reg BI, which went into effect June 30.
If the White House changes hands, the debate around investment advice regulation that has been going on for roughly a decade is likely to continue. "We have a pretty good sense that in the Democratic Party there was a lot of unhappiness with Reg BI and about DOL's part of the fiduciary rule puzzle," Mr. Kreps said. "I suspect that will get reopened no matter what the DOL does, whether they finalize the (prohibited transaction exemption) or not."
With respect to the proposals concerning ESG investments and proxy voting, which have garnered widespread criticism from the investment community, Mr. Kreps said he doesn't "see any scenario where a Biden administration lets those stand."
Many of the recent Labor Department proposals were instigated by executive orders from the White House issued earlier in President Donald Trump's term. If Mr. Trump is re-elected, "I think we can expect more of that," said Geoffrey Manville, partner and senior director of government relations at Mercer in Washington.
