Friday, December 09, 2011

House Leaders Give Guidance on Reproposed Definition of ERISA Fiduciary in Letter to DOL

In a letter to the Department of Labor, House oversight leaders spelled out guidance on any reproposed regulation defining an ERISA fiduciary. They praised DOL’s decision to withdraw the proposal to change ERISA’s definition of fiduciary and seek to repropose the regulation in 2012. The letter was signed by among others, Rep. Judy Biggert (R-IL), Chair of the Insurance Subcommitttee, Scott Garrett (R-NJ), Chair of the Capital Markets Subcommttee, and Rep. Randy Neugebauer R-TX), Chair of the Oversight and Investigations Subcommittee.

According to the oversight Chairs, the reproposed regulation must recognize the broad range of financial products and services currently available and avoid costly new regulations that could reduce choice among qualified service providers and investment products. In addition, they cautioned that the rule should not compound the investor confusion that the SEC’s recent Dodd-Frank study identified as the primary problem for retail investors.

To this end, said the House leaders, any reproposed rule should be carefully and effectively targeted to address well-defined and well-documented problems in the retirement planning advice business. It must also recognize that IRA accounts are significantly different from employer-sponsored plans because the IRA investor has nearly a limitless choice among service providers and investment products.

The new fiduciary definition must also ensure that plan participants and plan sponsors continue to be able to receive the critical information they need to expand retirement savings and coverage, emphasized the Chairs. Moreover, it should preserve investor access to and choice among suitable financial products and services delivered by qualified financial professionals.

The Securities Industry and Financial Markets Association (SIFMA) praised the Labor Department's decision to repropose the changes to the fiduciary standard under ERISA to, among other things, coordinate the rulemaking more closely with the SEC and CFTC. Since the beginning, SIFMA had raised significant concerns about the proposal and lack of cost-benefit analysis on a rule that would affect millions of IRA holders and plan participants.

In earlier testimony before the House Education and Workforce Committee, SIFMA asserted that the proposed rule was in conflict with Section 913 of the Dodd-Frank Act, which authorizes the SEC to establish a uniform fiduciary standard of care for brokers and advisors providing personalized investment advice. While current exemptions to the prohibited transaction rules of ERISA permit fiduciaries to select themselves or an affiliate to effect agency trades for a commission, there is no exemption that permits a fiduciary to sell a fixed income security or any other asset on a principal basis to a fiduciary account. Lack of exemptive relief in this area is contrary to what Congress explicitly stated in authorizing the SEC to promulgate a uniform fiduciary standard of care for brokers and advisers providing personalized investment advice under Section 913 of Dodd-Frank.