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Federal Roundup: Retirement Industry Braces for a Final Ruling as DOL Public Hearing Marathon Concludes

Congress returned from its annual August recess, but the fiduciary debate raged on in Washington, D.C. as the Department of Labor (DOL) conducted four days of public hearings the second week of August. The hearings consisted of 20 panels comprised of over 60 witnesses who presented a mixed bag of testimony. Panels were arranged with witnesses for and against the DOL’s proposed rule, but there were no major fireworks. Most witnesses filed public comment letters in July and used this hearing to restate their policy contentions. However, the hearings were more instructive to gain insight into the DOL’s policy mindset.

In particular, the DOL made it clear that they do not believe in a seller’s exception, something that NAFA and many stakeholders have urged the DOL to consider. They think that sales are providing advice and an exception will undermine consumer protection. Also, the DOL believes its language on educational material is appropriate, but appears willing to consider some industry concerns regarding providing consumers with specific product education not being deemed “advice.”

It is hard to know what impact the hearings will have on the DOL’s final rule, but given the mixed record and list of concerns, presumably the DOL will make some changes. However, most insiders think the rule will not be workable as “material” changes are necessary, but such changes might force the DOL to re-propose the rule as there could be violations of the Administrative Procedures Act (APA).

NAFA’s Work

After the hearings concluded, the DOL published transcripts and allowed a 14-day second public comment period that closed on September 24. Prior to the comment period closing, a NAFA team led by Chip Anderson, met with key DOL officials to explain fixed annuities and proposed changes to PTE 84-24.

A positive dialogue occurred when we were able to answer many questions, including questions about fixed indexed annuities. NAFA’s second comment letter included important characteristics about fixed annuities and their unique place in the universe of retirement products as well as further explaining the importance of providing educational assistance that should not be deemed fiduciary advice.

We hope the DOL will address our suggested changes from both the NAFA comment letters to ensure that the final rule is workable and to protect an essential class of lifetime income products for Americans. At this point, many observers believe the DOL will go dark until a final rule is published so stakeholders are on pins and needles as the retirement industry braces for a final rule possibly by January 2016. Certainly, a final rule will be published by next March as the Obama Administration works to make sure the rule is implemented prior to the next Administration.

Meanwhile, Congress has taken a stepped up interest by holding several hearings to conduct oversight on the proposed rule. Recently, over 90 House Democrats sent a letter to Secretary Perez urging caution. Additionally, the House Financial Services Committee passed legislation from Representative Wagner that would prevent the DOL from implementing a final rule until the SEC publishes a fiduciary rule. The bill passed on a party line vote with one Democratic member voting with Republicans. Recently the House passed the Wagner bill, but it is not likely the Senate will act.

Lastly, there are efforts by some lawmakers to restrict funding to implement the DOL rule, but it is not clear at this point if such language will be included in a so-called “cromnibus” spending package later this year. We anticipate more Congressional activity, but it is increasingly clear that this rule will become reality and therefore, some stakeholders are already gearing up for litigation.

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