DOL's Ali Khawar says new fiduciary rule proposal to come 'very soon'

The Labor Department plans to issue a new proposal on fiduciary investment advice "very soon," said Ali Khawar, principal deputy assistant secretary for the DOL's Employee Benefits Security Administration.

The new fiduciary proposal is "a very important priority" that the department has been working on for a long time, Khawar said in a discussion with Nikki Pirrello, publisher and president of Pensions & Investments, during P&I's Defined Contribution West Conference on Oct. 23 in San Diego. While Khawar joked that the definition of "very soon" could mean as early as today or one year from now, Lisa M. Gomez, assistant secretary for employee benefits security, also said last week to expect the proposal "very soon."

The DOL submitted its proposal for review to the Office of Information and Regulatory Affairs within the White House's Office of Management and Budget on Sept. 8; the review process can take up to 90 days but is unlikely to take that long.

Gomez said Oct. 16 that the new rule will not be a "regurgitation of the old rule," and it will be referred to as the "retirement security rule" instead of the "fiduciary rule" to differentiate it from its predecessor.

In 2016, under the Obama administration, the department finalized a rule known as the fiduciary rule that expanded the definition of a person or entity taking on fiduciary responsibilities and replaced a five-part test previously used to determine whether an investment professional or financial institution serves as a fiduciary.

However, in 2018, a three-judge panel at the Fifth U.S. Circuit Court of Appeals in New Orleans vacated the rule in a 2-1 decision, ruling that the department exceeded its legal authority.

At the conference, Khawar admitted "there is a bit of a patchwork right now" for the regulatory framework governing fiduciary investment advice. For example, the SEC's rule package, known as Regulation Best Interest, does not explicitly include advice for plan sponsors, he said.

The Regulation Best Interest package took effect in 2020 and aims to address the obligations of broker-dealers and investment advisers when they provide recommendations or investment advice to retail investors, including rollover recommendations.

"There we have a nuance that can't be addressed by the existing framework," Khawar said. "And so, those are the kinds of questions that are on the forefront of our minds."

Separately, the department is working to implement various aspects of SECURE 2.0, the retirement security package that passed Congress in December, Khawar said.

One of SECURE 2.0's nearly 100 provisions codifies the auto-portability process so that an employee's 401(k) plan can be automatically rolled over to their new employer after changing jobs.

"We know that this is a pretty significant problem in the system," and the Labor Department plans to issue a rule-making in order to set that provision into motion, Khawar said.

"We're not going to have a final rule out in the next two months, but we do intend to try and have a proposal out to give people some sense of how we think about these issues," he said.

Khawar added that SECURE 2.0's emergency savings provisions are something "people really should be prioritizing," because they could help increase retirement savings for a large swath of the population.

SECURE 2.0 includes a few provisions aimed at allowing participants to have access to rain-day funds in case of economic uncertainty, including offering emergency savings accounts as part of employer retirement plans.