Republican Senators warn OMB director about proposed fiduciary rule

Republican lawmakers have cautioned the Office of Management and Budget against approving the DOL’s proposed rule “to redefine and expand the term ‘fiduciary’” if the current proposal is not significantly different from the version offered in 2010. On Wednesday, March 11, 2015, Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN), along with eight other Republican committee members, sent a letter to OMB Director Shaun Donovan expressing their concern that the “proposed rule to change the regulatory structure for and redefine the term ‘fiduciary’” for ERISA purposes “could result in a number of unintended consequences for consumers.” The Senators’ concerns echo those expressed earlier this month by Republican lawmakers in the House.

President Obama recently announced that the DOL was sending its updated version of the previously-proposed fiduciary rule to OMB for review. The lawmakers are concerned that the updated rule “could resemble the administration’s ‘contentious, and ultimately failed’ 2010 proposal that would have broadly expanded the definition—and the legal liabilities—for someone identified as a ‘fiduciary,’” according to a committee release. They also pointed to the DOL’s “seeming lack of coordination with the [SEC],” calling it “troubling.”

Among other things, the Republican Senators cited a survey of small businesses in which 34 percent of respondents who offer retirement plans indicated that a proposed rule similar to the 2010 version would “make it at least somewhat likely that they would spend less money and time on employee education.” Such a proposal “may bring an end to call centers and broker-dealer assistance that have customarily helped consumers understand what retirement savings options are available upon termination from a company,” the letter warns. “Eliminating this source of financial literacy has been estimated to increase annual retirement savings withdrawals by an additional $20 to $32 billion.”

After the proposed regulations issued in October 2010 came under intense criticism, the Employee Benefits Security Administration (EBSA) announced in 2011 it would re-propose the rules.

Real-world concerns

The Senators also offered a list of 10 points they believe the OMB should consider in reviewing the DOL’s proposed rule, including this first point: “Consider whether there is a systemic problem, or any real-world examples of concerns, this proposed rule intends to address.”

The White House has released a report of the President’s Council of Economic Advisors detailing the concerns the proposed rule would address. For example, the current definition of retirement investment advice has not been meaningfully changed since 1975. “Many advisers currently act as fiduciaries and provide advice in their clients’ best interest, but many others do not,” according to the report. The report also found that an estimated $1.7 trillion of IRA assets are invested in products that generally provide payments that generate conflicts of interest—at a cost to these investors of about $17 billion each year. Among the findings: a typical worker who receives conflicted advice when rolling over a 401(k) balance to an IRA at age 45 will lose an estimated 17 percent from her account by age 65; and a retiree who receives conflicted advice on how to invest his IRA at retirement will lose an estimated 12 percent of the value of his savings if drawn down over 30 years compared to a retiree who receives unconflicted advice.

The letter to the OMB Director was also signed by Senators Mike Enzi (R-WY), Richard Burr (R-NC), Johnny Isakson (R-GA), Mark Kirk (R-IL.), Tim Scott (R-SC), Orrin Hatch (R-UT), Pat Roberts (R-KS), and Bill Cassidy (R-LA).

Source: Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Lamar Alexander to OMB Director Shaun Donovan.

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