Congress seeks to derail Department of Labor fiduciary rule

With the Department of Labor’s (DOL) release of the final fiduciary rule imminent, Congress is stepping up scrutiny of the rulemaking process. Legislative efforts are underway to stop the DOL from implementing the final rule.

The DOL’s fiduciary rule would expand the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA), by redefining the term “investment advice” to encompass activities that occur within pension and retirement plans, but that do not constitute investment advice under the existing definition of investment advice. The DOL’s expanded definition of fiduciary of an employee benefit plan would add brokers and advisers providing advice to IRA owners to the definition. This raises the specter that credit unions that partner with brokers to offer investment advice to IRA owners could become subject to the regulations.

The DOL first issued proposed regulations in October 2010, but withdrew them in 2011 in the face of heated opposition from the industry and members of Congress, only to re-propose them in 2015. Last August, the DOL held four days of public hearings on the proposed regulations, hearing from more than 70 witnesses and receiving thousands of comment letters.

The Credit Union National Association (CUNA) submitted two comment letters—one prior to the public hearings and another immediately after—to highlight credit union concerns with the proposed regulations.

For most credit unions offering brokerage services, compliance with the DOL’s proposed rule will fall to the third-party broker that the credit union contracts with to provide the service. Credit union employees who interact with both IRA owners and the third-party broker offering IRA services have a limited role and generally are not involved in selling the products. However, CUNA is concerned that under the proposed regulations, credit unions could be swept into the definition of fiduciary in those instances where the credit unions share employees with the third-party broker. And, that as sponsors of third-party brokers, credit unions could be included in class action lawsuits brought under the DOL’s enforcement mechanism when plaintiffs bring actions against multiple parties.

CUNA also asked the DOL to consider concerns voiced by a number of witnesses at the public hearings that the proposed regulations may discourage financial institutions from offering opportunities to educate their account owners about saving for retirement and planning for the future. A number of witnesses indicated that the compliance costs associated with the proposed regulations is likely to adversely affect low- and middle-income income households as advisors and brokers focus solely on high net-worth clients. CUNA is concerned that credit union members, who look to their credit unions for information on saving for retirement, may not have access to the financial advice that they need. CUNA wants to ensure that credit union members continue to have opportunities to learn about retirement investment options.

A majority staff report of the Senate Committee on Homeland Security and Government Affairs also found that middle class households could be adversely affected by the proposed regulations. The report noted that the proposed regulations could increase the price of investment advice and ultimately decrease the availability of advice for low- and middle-income investors.

Presumably, after reviewing the comment letters and testimony from the public hearings, amendments to the proposed regulations were made before sending the final rule to the Office of Management and Budget (OMB) for review. Upon completion of the review, Congress will have 60 days to examine the regulation before it can be officially finalized.

Congressional efforts are now underway to delay the final rule or scuttle it altogether. Last October, the House of Representatives, by a vote of 245–186, passed H.R. 1090, the Retail Investor Protection Act of 2015. Sponsored by Representative Ann Wagner (R-MO), H.R. 1090 addresses concerns that comments from the Securities and Exchange Commission (SEC) were not considered by the DOL in drafting the proposed regulations. H.R. 1090 would delay the final rule until the SEC issues a rule governing standards of conduct for brokers and dealers. Senator Roy Blunt (R-MO) earlier this year introduced a Senate version of the bill.

In early February, the House Ways and Means Committee, by a vote of 26–12, approved H.R. 4294, the Strengthening Access to Valuable Education and Retirement Support (SAVERS) Act, sponsored by Representatives Peter Roskam (R-IL) and Richard Neal (D-MA), which would require Congress to approve the DOL’s final fiduciary rule before it goes into effect. Senator Mark Kirk (R-IL) has introduced a Senate version of the bill. Senator Johnny Isakson (R-GA) has introduced similar legislation, the Affordable Retirement Advice Protection Act, which also would require Congressional approval of the DOL’s final rule. A companion bill, H.R. 4293, has been introduced in the House.

It is unclear whether the full Senate will take action on any of the bills, but even if any of the bills were to pass both the House and Senate, it is a given that President Obama would veto the legislation. And, while there are no guarantees, it is very unlikely that Congress would have enough votes to override the veto, which requires a two-thirds majority in both the House and the Senate.

CUNA has sent letters of support to the sponsors of the legislation outlining the concerns that credit unions have with the proposed regulations. CUNA is concerned that the proposed regulations may reduce options for low- and middle-income credit union members to save and invest. CUNA also is concerned that the proposed regulations could negatively affect credit unions that offer investment services through third-party brokers and limit the opportunities for credit unions to educate their members about IRAs and retirement plans.

Credit unions would be well-advised to carefully review the final rule once released, especially if they offer investment services through third-party brokers.