Wednesday, July 11, 2012

Leading House Democrats Urge DOL to Closely Coordinate with the SEC in Defining ERISA Fiduciary


In a letter to Labor Secretary Hilda Solis, copied to SEC Chairman Mary Schapiro, 33 leading House Democrats urged the DOL to work closely with the SEC in defining the term fiduciary in the context of providing investment advice under ERISA. The House Members emphasized that it is essential for the relevant federal agencies to coordinate their actions and arrive at workable and consistent regulations in order to ensure that the final regulatory framework preserves current access to investment information. The members are concerned that DOL may not be following this approach with respect to its reproposal. The letter was signed by Rep. Barney Frank, Ranking Member on the Financial Services Committee, Rep. Carolyn Maloney (R-NY), Ranking Member on the Financial Institutions Subcommittee.

The House Members detect a lack of meaningful coordination between the DOL and the SEC, despite the fact that the SEC is engaged in a parallel project. This lack of coordination is particularly acute because the SEC project is driven by a statutory directive in the Dodd-Frank Act and thus is subject to clear Congressional guidelines, while the DOL’s is not. In the view of the Members, real coordination between the DOL and the SEC would better reflect the intent of Congress and Executive Order 13563 on improving the process of adopting regulations, which emphasizes the need for greater coordination across federal agencies and harmonization.

Achieving such coordination and harmonization, said the House Members, would entail jointly requesting information, developing guidance in parallel with the SEC based on this information, and ensuring consistency in that guidance by promulgating regulations simultaneously with the Commission. Unfortunately, said the Members, DOL has shown little interest in engaging in joint data requests or coordinated rulemaking with the SEC.

The Members also noted that DOL’s data requests to the securities industry have been unrealistic in both scope and timing. While DOL should consult with the industry in gathering its cost-benefit information, DOL asked industry representatives for detailed data on every investment, every investor, and every recommendation for the last ten years in every context, including IRAs, plans, and regular retail accounts. Describing this sweeping request as impractical on its face, the Members noted that different securities firms keep data in different ways for different periods. Thus, generating 10-year data in the ways requested by DOL would be a difficult if not impossible task.

More broadly, while the Members appreciate that DOL agrees that any significant regulatory overhaul must be justified by a thorough and data-driven analysis, DOL’s approach to that analysis may not be on the right path. The data requests should be focused on the critical national need for investment information and education, emphasized the House Members, but instead the requests for data from the securities industry indicate that DOL may be headed in a direction that could actually restrict access to investment education and information. Without evidence of a problem that would justify such restrictions, the Representatives are troubled by this direction.

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