Sunday, August 04, 2013

Senate Pension Reform Legislation Would Order Treasury-SEC Consultation on Broker and Adviser Standard of Care

Senator Orrin Hatch (R-Utah), Ranking member on the Finance Committee, has introduced S 1270 the Secure Annuities for Employee Retirement Act, S. 1270, which addresses two critically important aspects of retirement policy: 401(k) plan coverage and access to professional investment advice for workers and retirees. The legislation is designed to ensure that retirees continue to have affordable access to professional investment advice. The Acting Secretary of Labor is set to rewrite a 1975 regulation and dramatically expand the ERISA fiduciary duty and prohibited transaction rules applicable to 401(k) plans. According to Senator Hatch, the Acting Secretary also intends to apply the new and restrictive rules to IRAs, which will cause investment advisers to stop providing advice to many IRA owners.
The IRA prohibited transaction rules are codified solely in the Internal Revenue Code and address transactions that involve self-dealing and conflicts of interest. Prior to the issuance of 1978 Executive Order 12108, Treasury had jurisdiction over the IRA prohibited transaction rules governing investment advice. The 1978 order transferred Treasury' s jurisdiction to the DOL.

The SAFE Retirement Act restores jurisdiction for IRA prohibited transaction rules to the Treasury Department. In addition, under the legislation, Treasury will be required to consult with the SEC when prescribing rules relating to the professional standard of care owed by brokers and investment advisers to IRA owners. Specifically, the Secretary of the Treasury must consult with the SEC in prescribing regulations, rulings, opinions, and exemptions that provide guidance of general application as to the professional standards of care, whether involving fiduciary, suitability, or other standards, owed by brokers and investment advisors to owners and account holders of accounts and annuities.
The 1978 Executive Order also transferred to the DOL some of the Treasury Department's joint jurisdiction over the prohibited transaction rules applicable to retirement plans. The legislation would retore joint jurisdiction to Treasury and the DOL. Joint jurisdiction makes sense in light of the DOL proposal to expand the 1975 regulation because Treasury must enforce prohibited transaction violations through the assessment of excise taxes, said Senator Hatch. Treasury should have a role to play in any expansion of the rules because expanded rules will mean more excise tax cases for the IRS to process.