[House Report 118-878]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 118-878
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PROVIDING FOR CONGRESSIONAL DISAPPROVAL UNDER CHAPTER 8 OF TITLE 5,
UNITED STATES CODE, OF THE RULE SUBMITTED BY THE DEPARTMENT OF LABOR
RELATING TO ``RETIREMENT SECURITY RULE: DEFINITION OF AN INVESTMENT
ADVICE FIDUCIARY''
_______
December 16, 2024.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Ms. Foxx, from the Committee on Education and the Workforce, submitted
the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.J. Res. 142]
[Including cost estimate of the Congressional Budget Office]
The Committee on Education and the Workforce, to whom was
referred the joint resolution (H.J. Res. 142) providing for
congressional disapproval under chapter 8 of title 5, United
States Code, of the rule submitted by the Department of Labor
relating to ``Retirement Security Rule: Definition of an
Investment Advice Fiduciary'', having considered the same,
reports favorably thereon without amendment and recommends that
the joint resolution do pass.
PURPOSE
The purpose of H.J. Res. 142 is to disapprove of the final
rule titled ``Retirement Security Rule: Definition of an
Investment Advice Fiduciary'' that the U.S. Department of Labor
(DOL) published in the Federal Register on April 25, 2024.
COMMITTEE ACTION
112TH CONGRESS
First Session--Hearings.
Full Committee hearing on DOL's policies and priorities
On February 16, 2011, the Committee on Education and the
Workforce (Committee) held a hearing titled ``Policies and
Priorities at the U.S. Department of Labor.'' The purpose of
the hearing was to examine, among other subjects, DOL's 2010
proposed rule (2010 proposal) significantly expanding the
definition of ``fiduciary'' under the Employee Retirement
Income Security Act of 1974 (ERISA) and the Internal Revenue
Code (Tax Code).\1\ The Honorable Hilda L. Solis, Secretary of
Labor, was the sole witness. During the hearing,
Representatives Judy Biggert (R-IL) and Carolyn McCarthy (D-NY)
expressed concerns regarding DOL's proposed rule in regard to
DOL's lack of coordination with the Securities and Exchange
Commission (SEC).
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\1\Definition of the Term ``Fiduciary,'' 75 Fed. Reg. 65,263
(proposed Oct. 22, 2010).
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Subcommittee hearing on 2010 fiduciary proposal
On July 26, 2011, the Subcommittee on Health, Employment,
Labor, and Pensions (HELP Subcommittee) held a hearing titled
``Redefining `Fiduciary': Assessing the Impact of the Labor
Department's Proposal on Workers and Retirees'' to examine the
consequences of the 2010 proposal. Witnesses were the Honorable
Phyllis Borzi, Assistant Secretary of Labor, Employee Benefits
Security Administration, Washington, D.C.; Kenneth Bentsen,
Executive Vice President, Securities Industry and Financial
Markets Association, Washington, D.C.; Kent Mason, Partner,
Davis and Harman LLP, Washington, D.C.; Donald Myers, Partner,
Morgan, Lewis and Bockius LLP, Washington, D.C.; Norman Stein,
Professor, Earle Mack School of Law, Drexel University,
Philadelphia, PA; and Jeffrey Tarbell, Director, Houlihan
Lokey, San Francisco, CA.
Second Session--Full Committee hearing on Fiscal Year (FY) 2013 budget
proposal for DOL
On March 21, 2012, the Committee held a hearing titled
``Reviewing the President's Fiscal Year 2013 Budget Proposal
for the Department of Labor.'' Secretary Solis was the sole
witness. During the hearing, Republican and Democrat Members
thanked Secretary Solis for withdrawing the 2010 proposal.
113TH CONGRESS
Second Session--Full Committee hearing on FY 2015 budget proposal for
DOL
On March 26, 2014, the Committee held a hearing titled
``Reviewing the President's Fiscal Year 2015 Budget Proposal
for the Department of Labor.'' The Honorable Thomas E. Perez,
Secretary of Labor, was the sole witness. During this hearing,
Chairman John Kline (R-MN) raised concerns regarding DOL's
ongoing fiduciary rulemaking, including the impact on important
investment advice that low-income people might need.
114TH CONGRESS
First Session--Hearings
Full Committee hearing on FY 2016 budget proposal for DOL
On March 18, 2015, the Committee held a hearing titled
``Reviewing the President's Fiscal Year 2016 Budget Proposal
for the Department of Labor.'' Secretary Perez was the sole
witness. During the hearing, Representative Frederica Wilson
(D-FL) raised concerns about the impact of a new proposed
fiduciary rule on the availability of affordable investment
advice.
Subcommittee hearing on 2015 proposed fiduciary rule
On June 17, 2015, the HELP Subcommittee held a hearing
titled ``Restricting Access to Financial Advice: Evaluating the
Costs and Consequences for Working Families and Retirees.'' The
purpose of the hearing was to examine DOL's proposed rule
titled ``Definition of the Term ``Fiduciary'': Conflict of
Interest Rule--Retirement Investment Advice,'' published on
April 20, 2015.\2\ Witnesses were Secretary Perez; Jack Haley,
Executive Vice President, Fidelity Investments, Boston, MA;
Dean Harman, Managing Director, Harman Wealth Management, The
Woodlands, TX; Dennis Kelleher, President and CEO, Better
Markets, Washington, D.C.; Kent Mason, Partner, Davis and
Harman LLP, Washington, D.C.; and Brian Reid, Chief Economist,
Investment Company Institute, Washington, D.C.
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\2\Definition of the Term ``Fiduciary''; Conflict of Interest
Rule--Retirement Investment Advice, 80 Fed. Reg. 21,928 (proposed Apr.
20, 2015).
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Subcommittee hearing on 2015 proposed fiduciary rule
On December 2, 2015, the HELP Subcommittee held a hearing
titled ``Principles for Ensuring Retirement Advice Serves the
Best Interests of Working Families and Retirees'' to examine
DOL's 2015 proposed fiduciary rule. Witnesses before the
Subcommittee were the Honorable Bradford (Brad) Campbell,
Counsel, Drinker Biddle and Reath LLP, Washington, D.C.; Rachel
A. Doba, President, DB Engineering, LLC, Indianapolis, IN;
Jules O. Gaudreau, Jr., President, The Gaudreau Group, Inc.,
Wilbraham, MA; and Marilyn Mohrman-Gillis, Managing Director,
Public Policy and Communications, Certified Financial Planner
Board of Standards, Washington, D.C. The Subcommittee
considered, among other subjects, the potential negative
effects of the 2015 proposed fiduciary rule on small businesses
and lower- and middle-income families.
Legislative Action
H.R. 4293, Affordable Retirement Advice Protection Act, introduced
On December 18, 2015, Representative Phil Roe (R-TN),
Chairman of the HELP Subcommittee, along with Representatives
Richard Neal (D-CT), Peter Roskam (R-IL), John Larson (D-CT),
Earl L. ``Buddy'' Carter (R-GA), and David Scott (D-GA),
introduced the Affordable Retirement Advice Protection Act
(H.R. 4293).\3\ The legislation ensures retirement advisors act
in their clients' best interests and prohibits DOL from
implementing its flawed proposal unless Congress affirmatively
approves the final rule.
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\3\H.R. 4293, 114th Cong. (2015).
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H.R. 4294, Strengthening Access to Valuable Education and Retirement
Support Act of 2015, introduced
On December 18, 2015, Representative Roskam, along with
Representatives Roe, Neal, Larson, Tom Reed (R-NY), and
Michelle Lujan Grisham (D-NM), introduced the Strengthening
Access to Valuable Education and Retirement Support Act of 2015
(H.R. 4294).\4\ The legislation amends the Tax Code to ensure
retirement advisors act in their clients' best interests and
prohibits DOL from implementing its flawed proposal unless
Congress affirmatively approves the final rule.
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\4\H.R. 4294, 114th Cong. (2015).
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Committee passes H.R. 4293, Affordable Retirement Advice Protection Act
On February 2, 2016, the Committee considered H.R. 4293,
the Affordable Retirement Advice Protection Act, in legislative
session. Representative Roe offered an amendment in the nature
of a substitute (ANS) making technical changes to the bill,
which was adopted by voice vote. The Committee favorably
reported H.R. 4293, as amended, to the House of Representatives
by a recorded vote of 22-14.
Committee passes H.R. 4294, Strengthening Access to Valuable Education
and Retirement Support Act of 2015
On February 2, 2016, the Committee considered H.R. 4294,
the Strengthening Access to Valuable Education and Retirement
Support Act of 2015, in legislative session. Representative
Carter offered an ANS making technical changes to the
introduced bill, which was adopted by voice vote. The Committee
favorably reported H.R. 4294, as amended, to the House of
Representatives by a recorded vote of 22-14.
H.J. Res. 88, Disapproving the Rule Submitted by the Department of
Labor Related to the Definition of the Term ``Fiduciary,''
introduced
On April 19, 2016, Representative Roe, along with
Representatives Charles Boustany (R-LA) and Ann Wagner (R-MO),
introduced H.J. Res. 88, Disapproving the rule submitted by the
Department of Labor relating to the definition of the term
``Fiduciary,'' pursuant to the Congressional Review Act. H.J.
Res. 88 would nullify DOL's final rule titled ``Definition of
the Term ``Fiduciary'': Conflict of Interest Rule--Retirement
Investment Advice'' published on April 8, 2016 (2016 Rule).\5\
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\5\Definition of the Term ``Fiduciary''; Conflict of Interest
Rule--Retirement Investment Advice, 81 Fed. Reg. 20,946 (Apr. 8, 2016).
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Committee passes H.J. Res. 88, Disapproving the Rule Submitted by the
Department of Labor Related to the Definition of the Term
``Fiduciary''
On April 21, 2016, the Committee considered H.J. Res. 88 in
legislative session and reported the resolution favorably to
the House of Representatives by a recorded vote of 22-14.
Congressional passage of H.J. Res. 88, Disapproving the Rule Submitted
by the Department of Labor Related to the Definition of the
Term ``Fiduciary''
On April 28, 2016, the House of Representatives passed H.J.
Res. 88 by a vote of 234-183. The Senate subsequently passed
H.J. Res. 88 on May 24, 2016, by a vote of 56-41.
Presidential veto of H.J. Res. 88, Disapproving the Rule Submitted by
the Department of Labor Related to the Definition of the Term
``Fiduciary''
On June 7, 2016, President Obama vetoed H.J. Res. 88. On
June 22, 2016, the passage of H.J. Res. 88, the objections of
the President to the contrary notwithstanding, failed in the
House of Representatives by a vote of 239-180, less than the
two-thirds majority needed.
115TH CONGRESS
First Session--Hearings
Subcommittee hearing on DOL's 2016 final fiduciary rule
On May 18, 2017, the HELP Subcommittee held a hearing
titled ``Regulatory Barriers Facing Workers and Families Saving
for Retirement'' to examine the impact of the 2016 Rule.
Witnesses before the Subcommittee were the Honorable Bradford
(Brad) Campbell, Partner, Drinker Biddle and Reath LLP,
Washington, D.C.; Jason Furman, Senior Fellow, Peterson
Institute for International Economics, Washington, D.C.; James
Kais, Senior Vice President and Managing Director, Retirement
Practice Leader, Transamerica, Saint Petersburg, FL; and Erik
Sossa, Vice President, Global Benefits and Wellness, PepsiCo,
Inc., Purchase, NY. The hearing examined, among other subjects,
increased costs and reduced access to investment advice when
the 2016 Rule was to go into effect on June 9, 2017.
Full Committee hearing on DOL's policies and priorities
On November 15, 2017, the Committee held a hearing titled
``Examining the Policies and Priorities of the U.S. Department
of Labor.'' The sole witness was the Honorable R. Alexander
Acosta, Secretary of Labor, Washington, D.C. Members discussed,
among other subjects, the flawed definition of ``fiduciary'' in
the 2016 Rule.
Legislative Action
H.R. 2823, Affordable Retirement Advice for Savers Act, introduced
On June 8, 2017, Representative Roe, along with
Representatives Roskam, Tim Walberg (R-MI), and Joe Wilson (R-
SC), introduced H.R. 2823, the Affordable Retirement Advice for
Savers Act, to overturn the 2016 Rule and to improve policies
governing financial advice in order to enhance protections for
retirement savers.\6\
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\6\H.R. 2823, 115th Cong. (2017).
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Committee passes H.R. 2823, Affordable Retirement Advice for Savers Act
On July 19, 2017, the Committee considered H.R. 2823, the
Affordable Retirement Advice for Savers Act, in legislative
session. Representative Roe offered an ANS making technical
changes to the bill, which was adopted by voice vote. The
Committee favorably reported H.R. 2823, as amended, to the
House of Representatives by a recorded vote of 23-17.
117TH CONGRESS
Second Session--Full Committee hearing on DOL's policies and priorities
On June 14, 2022, the Committee held a hearing titled
``Examining the Policies and Priorities of the U.S. Department
of Labor.'' The sole witness was the Honorable Martin J. Walsh,
Secretary of Labor, Washington, D.C. During this hearing,
Members discussed, among other subjects, potential efforts by
DOL to resurrect the court-vacated 2016 Rule.
118TH CONGRESS
Second Session--Hearings
Subcommittee hearing on protecting retirees
On February 15, 2024, the HELP Subcommittee held a hearing
titled ``Protecting American Savers and Retirees from DOL's
Regulatory Overreach.'' Witnesses were Doug Ommen,
Commissioner, Iowa Insurance Division, Des Moines, IA; Thomas
Roberts, Principal, Groom Law Group, Washington, D.C.; Jason
Berkowitz, Chief Legal and Regulatory Affairs Officer, Insured
Retirement Institute, Washington, D.C.; and Joseph Peiffer,
President, Public Investors Advocate Bar Association, Norman,
OK. The hearing examined DOL's proposed rule titled
``Retirement Security Rule: Definition of Advice Fiduciary''
published on November 3, 2023,\7\ including the proposed rule's
rushed rulemaking process, similarities to the court-vacated
2016 Rule, and negative impacts that a similar rule would have
on retirees.
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\7\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 88 Fed. Reg. 75,890 (proposed Nov. 3, 2023).
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Full Committee hearing on DOL's policies and priorities
On May 1, 2024, the Committee held a hearing titled
``Examining the Policies and Priorities of the Department of
Labor.'' The sole witness was the Honorable Julie A. Su, Acting
Secretary of Labor, Washington, D.C. During this hearing,
Members discussed, among other subjects, the burdensome nature
of the final rule published on April 25, 2024, titled
``Retirement Security Rule: Definition of Advice Fiduciary''
(2024 Rule),\8\ the truncated comment period during the
rulemaking process, and its similarity to the vacated 2016
rule.
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\8\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 89 Fed. Reg. 32,122 (Apr. 25, 2024).
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Subcommittee hearing on Employee Benefits Security Administration's
policies and priorities
On June 27, 2024, the HELP Subcommittee held a hearing
titled ``Examining the Policies and Priorities of the Employee
Benefits Security Administration.'' The sole witness was the
Honorable Lisa M. Gomez, Assistant Secretary, Employee Benefits
Security Administration, Washington, D.C. The hearing examined,
among other subjects, the burdensome nature of the 2024 Rule,
the truncated comment period during the rulemaking process,
similarities to the court-vacated 2016 rule, and H.J. Res. 142.
Legislative Action
H.J. Res. 142, Providing for Congressional Disapproval Under Chapter 8
of Title 5, United States Code, of the rule submitted by the
Department of Labor relating to ``Retirement Security Rule:
Definition of an Investment Advice Fiduciary,'' introduced
On May 15, 2024, Representative Rick Allen (R-GA)
introduced H.J. Res. 142, Providing for congressional
disapproval under chapter 8 of title 5, United States Code, of
the rule submitted by the Department of Labor relating to
``Retirement Security Rule: Definition of an Investment Advice
Fiduciary,'' along with Representatives Pete Sessions (R-TX),
Jeff Duncan (R-SC), Wagner, Ralph Norman (R-SC), Byron Donalds
(R-FL), Walberg, Kevin Hern (R-OK), Carol D. Miller (R-WV),
John R. Moolenaar (R-MI), Lloyd Smucker (R-PA), Roger Williams
(R-TX), John H. Rutherford (R-FL), Bruce Westerman (R-AR), Jim
Banks (R-IN), Julia Letlow (R-LA), J. French Hill (R-AR),
Tracey Mann (R-KS), Stephanie Bice (R-OK), Zachary Nunn (R-IA),
Brad Finstad (R-MN), William R. Timmons (R-SC), John Joyce (R-
PA), Carter, David Kustoff (R-TN), and Daniel Meuser (R-PA).
The resolution was referred to the Committee.
Committee passes H.J. Res. 142, Providing for Congressional Disapproval
Under Chapter 8 of Title 5, United States Code, of the rule
submitted by the Department of Labor relating to ``Retirement
Security Rule: Definition of an Investment Advice Fiduciary''
On July 10, 2024, the Committee considered H.J. Res. 142 in
legislative session and reported it favorably to the House of
Representatives by a recorded vote of 23-18.
COMMITTEE VIEWS
Introduction
DOL issued a final rule titled ``Retirement Security Rule:
Definition of an Investment Advice Fiduciary'' on April 25,
2024 (2024 Rule).\9\ The 2024 Rule redefines who is a fiduciary
subject to ERISA by reason of giving investment advice. The
2024 Rule greatly expands both the individuals and activities
subject to ERISA's fiduciary duties of prudence and loyalty and
as well as the prohibited transaction rules.\10\
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\9\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 89 Fed. Reg. 32,122 (Apr. 25, 2024).
\10\Id. at 32,242 (``[T]his rule will expand the parties that will
be considered investment advice fiduciaries and also will narrow the
exemption alternatives.'')
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DOL rushed the 2024 Rule through a truncated comment period
that did not allow stakeholders to provide fulsome feedback.
The 2024 Rule will have significant harmful impact on
retirement savings for lower- and middle-income Americans by
restricting access to retirement products, imposing significant
and expensive regulatory burdens, and creating marketplace
confusion. H.J. Res. 142 will nullify the 2024 Rule and
prohibit DOL from issuing another similar rule.
ERISA Fiduciaries
In 1974, Congress enacted ERISA to govern private,
employer-sponsored benefit plans, including pension plans and
other employee benefit plans that provide health and welfare
benefits.\11\ In the House of Representatives, the Committee
has jurisdiction over ERISA, although many ERISA provisions are
parallel to Tax Code provisions, which are subject to the
jurisdiction of the Committee on Ways and Means.
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\11\Pub. L. No. 93-406 (1974); 29 U.S.C. Sec. 1001 et seq.
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ERISA confers fiduciary status based on a person's
functional relationship to an employer-sponsored benefit plan.
With respect to investment advice, ERISA defines a fiduciary as
anyone who renders ``investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or
other property of such plan, or has any authority or
responsibility to do so.''\12\
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\12\ERISA Sec. 3(21)(A), 29 U.S.C. Sec. 1002(21)(A).
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ERISA imposes duties of loyalty and prudence on all ERISA
fiduciaries.\13\ ERISA's duty of loyalty requires fiduciaries
to act ``solely in the interest of the participants and
beneficiaries'' and for the ``exclusive purpose'' of providing
benefits to participants and their beneficiaries.\14\ ERISA's
duty of prudence requires a fiduciary to act with the ``care,
skill, prudence, and diligence . . . that a prudent man acting
in a like capacity and familiar with such matters would
use.''\15\ These responsibilities are accompanied with
significant risk, including risk of governmental
investigations\16\ and litigation.\17\
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\13\ERISA Sec. 404(a), 29 U.S.C. Sec. 1104(a).
\14\ERISA Sec. Sec. 403(a), (c)(1), 404(a)(1)(A); 29 U.S.C.
Sec. Sec. 1103(a), (c)(1), 1104(a)(1)(A).
\15\ERISA Sec. 404(a)(1)(B), 29 U.S.C. Sec. 1104(a)(1)(B).
\16\ERISA Sec. 504, 29 U.S.C. Sec. 1134.
\17\ERISA Sec. 502(a)(2), 29 U.S.C. Sec. 1132(a)(2). Under ERISA
section 502(a)(2), an action for a breach of fiduciary responsibility
may be brought by the Department of Labor, a plan participant or
beneficiary, or another fiduciary.
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A plan fiduciary who breaches any of the fiduciary
responsibilities, obligations, or duties imposed by ERISA
(including the prohibited transaction rules discussed below) is
personally liable to make good to the plan any resulting losses
and to restore to the plan any profits the fiduciary has made
through the use of plan assets.\18\ A plan fiduciary may also
be liable for a breach of duty by another plan fiduciary (a co-
fiduciary) in certain circumstances--for example, if the
fiduciary's failure to fulfill his or her own fiduciary duties
enabled the co-fiduciary to commit the breach.\19\ Certain
fiduciary violations may result in the imposition of civil
penalties.\20\
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\18\ERISA Sec. 409(a), 29 U.S.C. Sec. 1109(a).
\19\ERISA Sec. 405(a), 29 U.S.C. Sec. 1105(a).
\20\ERISA Sec. 502(i) & (l), 29 U.S.C. Sec. 1132(i) & (l).
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Prohibited Transaction Rules and Exemptions
To guard against self-dealing and to protect benefits, both
ERISA and the Tax Code categorically bar a number of
transactions involving persons who have ``fiduciary''
relationships to an ERISA plan, an Individual Retirement
Account (IRA), a Health Savings Account (HSA), and a variety of
other instruments.\21\ These complex restrictions are
collectively known as ``prohibited transaction'' rules.
Prohibited transaction rules bar a fiduciary from ``deal[ing]
with the assets of the plan in his own interest or for his own
account'' and from ``receiv[ing] any consideration for his own
personal account from any party dealing with such plan in
connection with the assets of the plan.''\22\ In relevant part,
these rules prevent an investment advice fiduciary from
receiving commissions or other types of transaction-based
compensation, including incentive compensation for sales.\23\
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\21\ERISA Sec. Sec. 406 & 408, 29 U.S.C. Sec. Sec. 1106 & 1108; Tax
Code Sec. 4975, 26 U.S.C. Sec. 4975.
\22\ERISA Sec. 408(b)(1), (3); 29 U.S.C. 1106(b)(1), (3).
\23\See Amendment to Prohibited Transaction Exemption 2020-02, 89
Fed. Reg. 32,260 (Apr. 25, 2024) (exemption allows investment advice
fiduciaries to receive certain types of compensation that would
otherwise be prohibited).
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ERISA authorizes DOL to ease some of the categorical bars
to transactions with respect to plans sponsored by private
employers through ``prohibited transaction exemptions.''\24\ To
prevent duplicative and potentially conflicting rules, in 1978,
President Carter transferred rulemaking authority for similar
prohibited transaction provisions under the Tax Code to
DOL.\25\ Therefore, even though ERISA does not apply to IRAs,
DOL is responsible for interpreting and administering the
prohibited transaction rules under ERISA and the Tax Code as
they apply to employer-provided ERISA plans, IRAs, and HSAs.
While ERISA contains remedies for violation of prohibited
transaction rules, including DOL enforcement actions and civil
penalties, similar rules for non-ERISA arrangements (such as
IRAs) are only enforced through tax-related penalties beyond
DOL's jurisdiction.\26\
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\24\ERISA Sec. 408(a), 20 U.S.C. Sec. 1108(a).
\25\Reorganization Plan No. 4 of 1978, Sec. 102 (ratified by Pub.
L. 98-532 (1984)), https://www:http/dol.gov/agencies/ebsa/laws-and-
regulations/laws/executive-orders/4.
\26\See ERISA Sec. Sec. 409 & 502, 29 U.S.C. Sec. Sec. 1109 & 1132;
26 U.S.C. Sec. Sec. 408 & 4975.
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Past Rulemaking on ERISA Fiduciaries
Under ERISA, a person is an investment advice fiduciary if
he or she renders ``investment advice'' for a fee or other
compensation, direct or indirect, with respect to any money or
property of an employer-sponsored benefit plan.\27\ In 1975,
DOL issued regulations creating a five-part test (1975 Five-
Part Test) to define ``investment advice'' for this
purpose.\28\ In relevant part, to render ``investment advice''
under the 1975 Five-Part Test, an individual must meet each of
the following prongs: (1) make recommendations as to the
advisability of investing in, purchasing, or selling securities
or other property (2) on a regular basis to the plan (3)
pursuant to a mutual agreement, arrangement, or understanding
(4) that the advice will serve as a primary basis for
investment decisions and (5) that the advice is based on
particular needs of the plan.\29\
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\27\ERISA Sec. 3(21)(A), 29 U.S.C. Sec. 1002(21)(A).
\28\29 C.F.R. Sec. 2510.3-21; Definition of the Term ``Fiduciary,''
40 Fed. Reg. 50,842 (Oct. 31, 1975).
\29\Id.
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2010 Proposed Rule. DOL first proposed replacing the 1975
Five-Part Test with an expansive definition of investment
advice fiduciary in 2010.\30\ The 2010 proposal would have
swept many more individuals and activities into ERISA's
regulatory jurisdiction, but DOL withdrew the proposed rule in
2011.\31\
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\30\Definition of the Term ``Fiduciary,'' 75 Fed. Reg. 65,263
(proposed Oct. 22, 2010).
\31\Cong. Res. Serv. (CRS), Department of Labor's 2015 Proposed
Fiduciary Rule: Background and Issues 8 (updated Apr. 1, 2016), https:/
/crsreports.congress.gov/product/pdf/R/R44207/11.
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2016 Rule. DOL issued a proposed rule in 2015,\32\ followed
by a final rule in 2016 (2016 Rule),\33\ broadly expanding who
and what activities would be subject to regulation under ERISA
by reason of giving investment advice.\34\ Like the 2010
proposal, the 2016 Rule greatly expanded the individuals and
activities subject to ERISA's fiduciary duties of prudence and
loyalty. The 2016 Rule also included a package of new or
revised prohibited transaction class exemptions with very
prescriptive requirements,\35\ including, in some cases, a
contract creating a private right of action.\36\ In 2018, the
U.S. Court of Appeals for the Fifth Circuit vacated the 2016
Rule in its entirety.\37\
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\32\Definition of the Term ``Fiduciary''; Conflict of Interest
Rule--Retirement Investment Advice, 80 Fed. Reg. 21,928 (proposed Apr.
20, 2015).
\33\Definition of the Term ``Fiduciary''; Conflict of Interest
Rule--Retirement Investment Advice, 81 Fed. Reg. 20,946 (Apr. 8, 2016).
\34\See CRS, Department of Labor's 2016 Fiduciary Rule on
Investment Advice (July 5, 2017), https://crsreports.congress.gov/
product/pdf/IF/IF10686/3.
\35\Best Interest Contract Exemption, 81 Fed. Reg. 21,002 (Apr. 8,
2016); Class Exemption for Principal Transactions in Certain Assets
Between Investment Advice Fiduciaries and Employee Benefit Plans and
IRAs, 81 Fed. Reg. 21089 (Apr. 8, 2016); Amendment to Prohibited
Transaction Exemption (PTE) 75-1, Part V, Exemptions From Prohibitions
Respecting Certain Classes of Transactions Involving Employee Benefit
Plans and Certain Broker-Dealers, Reporting Dealers and Banks, 81 Fed.
Reg. 21,139 (Apr. 8, 2016); Amendment to and Partial Revocation of
Prohibited Transaction Exemption (PTE) 84-24 for Certain Transactions
Involving Insurance Agents and Brokers, Pension Consultants, Insurance
Companies, and Investment Company Principal Underwriters, 81 Fed. Reg.
21,147 (Apr. 8, 2016); Amendments to Class Exemptions 75-1, 77-4, 80-83
and 83-1, 81 Fed. Reg. 21,208 (Apr. 8, 2016).
\36\Best Interest Contract Exemption, 81 Fed. Reg. 21,002 (Apr. 8,
2016).
\37\U.S. Chamber of Com. v. DOL, 885 F.3d 360 (5th Cir. 2018).
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2020 Prohibited Transaction Exemption (2020-02)
In October 2020, the Trump Administration DOL issued an
additional prohibited transaction exemption to give investment
advice fiduciaries another pathway for complying with the
prohibited transaction rules (2020-02).\38\ This exemption
provides broader and more flexible relief from the prohibited
transaction rules than other investment advice exemptions
because 2020-02 is principles-based rather than
prescriptive.\39\ This exemption includes a best interest
standard aligned with the conduct standards of the SEC's
``Regulation Best Interest.''\40\
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\38\Prohibited Transaction Exemption 2022-02, Improving Investment
Advice for Workers & Retirees, 85 Fed. Reg. 82,798 (Dec. 18, 2020).
\39\Id. at 82,800.
\40\Id. at 82,801.
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The preamble to 2020-02 reaffirmed the 1975 Five-Part Test
and, further, ``clarified'' that the regular-basis prong could
be fulfilled by initial advice to roll over amounts from a
retirement plan or IRA into another IRA or annuity if that
advice was the beginning of an expected ongoing advice
relationship.\41\ This interpretation was subsequently struck
down by two federal district courts.\42\ As a result, an
initial instance of advice to take a distribution from a
pension plan or IRA and to roll over the assets does not meet
the regular-basis requirement of the 1975 Five-Part Test. Thus,
this type of advice is not currently subject to ERISA's
fiduciary duties.
---------------------------------------------------------------------------
\41\Id. at 82,805.
\42\Am. Sec. Ass'n v. DOL, 2023 WL 1967573 (M.D. Fla. 2023); Fed'n.
of Ams. for Consumer Choice v. DOL, No. 3:22-cv-00243-K-BT (N.D. Tex.
June 30, 2023) (Rutherford, Mag. J).
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2024 Final Fiduciary Rule
DOL issued a proposed rule titled ``Retirement Security
Rule: Definition of Advice Fiduciary'' in November 2023,\43\
followed by the final 2024 Rule of the same name on April 25,
2024.\44\ The 2024 Rule redefines who is a fiduciary subject to
ERISA by reason of giving investment advice. Like the 2016
Rule, the 2024 Rule greatly expands both the individuals and
activities subject to ERISA's fiduciary duties of prudence and
loyalty and also the prohibited transaction rules.\45\
Coincident with issuing the 2024 Rule, DOL published a package
of separately issued amendments to existing prohibited
transaction class exemptions (PTEs), which limit the
availability of many pre-existing PTEs and layer on
prescriptive requirements in other PTEs.\46\ The 2024 Rule and
the associated amendments to the PTEs are effective September
23, 2024.\47\ H.J. Res. 142 only applies to the 2024 Rule and
not to the separately issued package of amendments to existing
PTEs.
---------------------------------------------------------------------------
\43\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 88 Fed. Reg. 75,890 (proposed Nov. 3, 2023).
\44\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 89 Fed. Reg. 32,122 (Apr. 25, 2024).
\45\Id. at 32,242 (``[T]his rule will expand the parties that will
be considered investment advice fiduciaries and also will narrow the
exemption alternatives.'').
\46\Amendment to Prohibited Transaction Exemption 2020-02, 89 Fed.
Reg. 32,260 (Apr. 25, 2024), Amendment to Prohibited Transaction
Exemption 84-24, 89 Fed. Reg. 32,302 (Apr. 25, 2024); Amendment to
Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, and 86-128
(Apr. 25, 2024). See also CRS, The Department of Labor's 2024 Final
Rule on Investment Advice in Private Sector Pension Plans and
Individual Retirement Accounts 8-16 (June 18, 2024), https://
crsreports.congress.gov/product/pdf/R/R48108.
\47\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 88 Fed. Reg. 75,890 (proposed Nov. 3, 2023); Amendment to
Prohibited Transaction Exemption 2020-02, 89 Fed. Reg. 32,260 (Apr. 25,
2024), Amendment to Prohibited Transaction Exemption 84-24, 89 Fed.
Reg. 32,302 (Apr. 25, 2024); Amendment to Prohibited Transaction
Exemptions 75-1, 77-4, 80-83, 83-1, and 86-128 (Apr. 25, 2024).
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Under the 2024 Rule, a person renders investment advice if
the person makes a recommendation of any securities or
investment transaction (or any investment strategy involving
securities or other investment property) to a retirement
investor.\48\ Retirement investor is broadly defined to include
a plan, a plan participant or beneficiary, an IRA, an IRA owner
or beneficiary, a plan fiduciary, or an IRA fiduciary.\49\ In
addition, to be an investment advice fiduciary, the person
making the recommendation either has (1) to make the
recommendation as a regular part of his or her business, based
on the needs or circumstances of the retirement investor, under
conditions indicating that the retirement investor may rely on
the advice to advance the investor's best interest or (2) to
represent or acknowledge that he or she is a fiduciary.\50\
Thus, the final rule sweeps in most, if not all, rollover
recommendations\51\ and annuity sales. At a HELP Subcommittee
hearing in February 2024, Thomas Roberts, a principal at Groom
Law Group, stated regarding substantively equivalent terms in
the proposed rule that the ``fundamental flaw is that it would
sweepingly confer fiduciary status on virtually all financial
professionals and sales people including broker-dealer
representatives and insurance agents. . . .''\52\
---------------------------------------------------------------------------
\48\29 CFR Sec. 2510.3(c)(1).
\49\29 CFR Sec. 2510.3(f)(11).
\50\29 CFR Sec. 2510.3(c)(1).
\51\See CRS, The Department of Labor's 2024 Final Rule on
Investment Advice in Private Sector Pension Plans and Individual
Retirement Accounts 12 (June 18, 2024), https://
crsreports.congress.gov/product/pdf/R/R48108.
\52\Protecting American Savers and Retirees from DOL's Regulatory
Overreach: Hearing Before the Subcomm. on Health, Emp., Lab., &
Pensions of the H. Comm. on Educ. & the Workforce, 118th Cong (2024)
(statement of Thomas Roberts, Principal, Groom Law Group, at 2).
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Concerns With the Final Rule
Reduced Access. The 2024 Rule expands DOL's jurisdiction to
roughly the same individuals and activities as the 2010
proposal and the 2016 Rule. It is, therefore, expected to limit
access to retirement products for lower- and middle-income
Americans.\53\ According to Jason Berkowitz, Chief Legal and
Regulatory Affairs Officer of the Insured Retirement Institute,
the proposal for the 2024 Rule heralded the same disastrous
effects as the 2016 Rule. At a HELP Subcommittee hearing in
February 2024, Mr. Berkowitz stated:
---------------------------------------------------------------------------
\53\Like the 2016 Rule, the 2024 Rule replaces the 1975 Five-Part
Test that was effectively reinstated by the Fifth Circuit when it
vacated the 2016 Fiduciary Rule. Id.
The [2024 Rule] proposal is functionally equivalent
to the now-vacated 2016 rule and, like that rule, will
harm millions of low- and middle-income retirement
savers--especially those in communities most impacted
by the wealth gap--by depriving them of access to the
products and services they need to achieve a dignified
retirement.\54\
---------------------------------------------------------------------------
\54\Protecting American Savers and Retirees from DOL's Regulatory
Overreach: Hearing Before the Subcomm. on Health, Emp., Lab., &
Pensions of the H. Comm. on Educ. & the Workforce, 118th Cong (2024)
(statement of Jason Berkowitz, Insured Retirement Inst., Chief Legal &
Reg. Aff. Officer, at 2).
A survey of the effects of the 2016 Rule before it was
vacated showed that 53 percent of financial institutions
surveyed either limited or eliminated advised brokerage
services for retirement investors.\55\ Further, 95 percent of
those financial institutions reported changing products
available to retirement investors, ``including limiting or
eliminating asset classes offered and certain share classes and
product structures.''\56\ Additionally, the Hispanic Leadership
Fund found that reinstating the 2016 Rule would reduce the
retirement savings of 2.7 million individuals with incomes
below $100,000 by an estimated $140 billion over 10 years.\57\
---------------------------------------------------------------------------
\55\Deloitte, The DOL Fiduciary Rule: A study on how financial
institutions have responded and the resulting impacts on retirement
investors 11 (Aug. 9, 2017), https://www.sifma.org/resources/general/
the-dol-fiduciary-rule-a-study-on-how-financial-institutions-have-
responded-and-the-resulting-impacts-on-retirement-investors/.
\56\Id. at 5.
\57\Hispanic Leadership Fund, Analysis of the Effects of the 2016
Department of Labor Fiduciary Regulation on Retirement Savings and
Estimate of the Effects of Reinstatement (Nov. 8, 2021), https://
hispanicleadershipfund.org/wp-content/uploads/2021/11/FINAL_HLF-
Quantria_FiduciaryRule_08Nov21.pdf.
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The 1975 Five-Part Test provides a workable framework that
is practical, predictable, and easy to apply to the modern
economy by making a critical distinction between investment
advice and sales activity.\58\ Since 1975, substantial case law
has relied upon this distinction in determining the scope of
activities that fall within ERISA's ``investment advice
fiduciary'' definition.\59\ As a result, the marketplace for
retirement investors has developed around the 1975 Five-Part
Test.\60\
---------------------------------------------------------------------------
\58\U.S. Chamber of Com. v. DOL, 885 F.3d at 373-74 (discussing the
1975 Five-Part Test's distinction between investment advice and sales
activity).
\59\Id. at 374.
\60\Id. at 368.
---------------------------------------------------------------------------
The distinction between investment advice and sales
activity is a crucial distinction for the retirement products
market. The 2024 Rule overturns this distinction and sweeps in
virtually all sales activities within the retirement space.\61\
This is the same mistake that DOL made with the 2016 Rule,
which was vacated by the Fifth Circuit.\62\ According to that
court, the 2016 Rule created significant adverse impacts on the
retirement products market, including the withdrawal of several
major companies from significant market segments, with the
result that millions of retirement investors were potentially
deprived of any and all investment advice.\63\ Because of the
similarities between the 2016 Rule and the 2024 Rule, the same
result is likely to follow.
---------------------------------------------------------------------------
\61\Roberts statement at 2, supra note 52.
\62\U.S. Chamber of Com. v. DOL, 885 F.3d 360 (5th Cir. 2018).
\63\Id. at 368.
---------------------------------------------------------------------------
The National Association of Insurance Commissioners (NAIC)
has also raised concerns that the 2024 Rule will result in
reduced access to retirement investment products, stating:
We continue to have significant concerns about the
potential impact of the [2024 Rule] on access and
choice for American retirees to certain life insurance
and annuity products. These products have been
recognized by multiple Administrations of both
political parties as an important option for retirees
to manage their risk of outliving their savings. The
final rule, which was rushed through the administrative
process at DOL and the Office of Management and Budget
with virtually no coordination with state insurance
regulators, also discounts the work of 45 states and
counting to enhance consumer protections for these
products by adopting the NAIC's Suitability in Annuity
Transactions Model Regulation which extends a level
playing field to products sold within and outside a
retirement plan.\64\
---------------------------------------------------------------------------
\64\Press Release, NAIC Releases Statement on the Final DOL
Fiduciary Rule (Apr. 23, 2024), https://content.naic.org/article/naic-
releases-statement-final-dol-fiduciary-rule.
Compliance Costs and Confusion. DOL's attempts to capture
rollovers and sales activity within the scope of ERISA's
fiduciary duties have created a costly and constantly shifting
landscape since 2010.\65\ Beginning with DOL's 2010 proposal,
retirement industry stakeholders have incurred significant
costs assessing the proposed rule, determining paths to
compliance, and attempting to educate DOL on the
impracticalities, if not impossibilities, of its proposed
regulatory changes. As late as 2023, industry stakeholders were
litigating DOL's attempts to regulate rollovers as a result of
the preamble to the 2020-02 prohibited transaction rules. Every
time DOL proposes a new rule, the retirement marketplace must
spend significant resources assessing the complexity of the
rule and possible paths to compliance. Every time DOL finalizes
a new rule, significant and expensive burdens are imposed on
the retirement marketplace as it adapts and retools to comply.
Subsequent shifts in the law stemming from courts invalidating
rules also lead to changes in the marketplace, reversing
earlier compliance efforts. These costly changes are
subsequently passed on to retirement savers.
---------------------------------------------------------------------------
\65\See, e.g., Carfora v. Teachers Ins. Annuity Ass'n of Am., 631
F.Supp.3d 125, 141-45 (S.D.N.Y. 2022) (providing a history of DOL's
``evolving interpretation'' of investment advice fiduciary), amended in
part by Carfora v. Teachers Ins. Annuity Ass'n of Am., 2023 WL 5342404
(S.D.N.Y. 2023).
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In addition to wasting resources, DOL's shifting positions
create confusion in the marketplace and in court.\66\ The U.S.
District Court for the Southern District of New York cited
DOL's shifting interpretations of investment advice fiduciary
under ERISA as a reason to disregard DOL's interpretations
wholly in this area. The court asked, ``How, then, should the
Court interpret the investment advice fiduciary provisions in
light of DOL's shifting interpretations? There is no DOL
interpretation binding on this court.''\67\ The 2024 Rule is
the latest example of DOL's inconsistency in this space.
---------------------------------------------------------------------------
\66\Id. at 144 (referring to the inconsistency of DOL's shifting
interpretations of investment advice fiduciary).
\67\Id.
---------------------------------------------------------------------------
Regulatory Overreach. After the 2016 Rule was vacated by
the Fifth Circuit, the SEC and the states adopted rules and
regulations to address conflicts of interest. The SEC's
Regulation Best Interest, which became effective in 2020,
requires broker-dealers to act in their clients' best interest
without putting their own interests first.\68\ Forty-five
states and counting have adopted an annuity suitability and
best interest standard (NAIC Best Interest Rule) for the sales
of annuities since the 2016 Fiduciary Rule was vacated in
2018.\69\ These rules and regulations were promulgated by
authorities with historical regulatory expertise and direct
jurisdiction over these industries and their distribution
chains.
---------------------------------------------------------------------------
\68\See Definition of the Term ``Fiduciary,'' 40 Fed. Reg. 50,842
(Oct. 31, 1975), codified at 29 C.F.R. Sec. 2510.3-21.
\69\Press Release, Insured Retirement Inst., California Becomes
45th State to Adopt NAIC Best Interest Regulation (Feb. 29, 2024),
https://www.irionline.org/news/article/california-becomes-the-45th-
state-to-adopt-naic-best-interest-regulation/.
---------------------------------------------------------------------------
The 2024 Rule does little to explain why these regulatory
developments are not sufficient to protect retirement
investors. While the preamble to the 2024 Rule states that the
SEC Regulation Best Interest and the NAIC Best Interest Rule do
not cover all assets held by retirement plans and are limited
with respect to advice provided to plan fiduciaries, the
preamble fails to demonstrate how this has resulted in
detrimental investment decisions.\70\
---------------------------------------------------------------------------
\70\Retirement Security Rule: Definition of an Investment Advice
Fiduciary, 89 Fed. Reg. 32,122, 32,128-32,131 (Apr. 25, 2024).
---------------------------------------------------------------------------
The preamble to the 2024 Rule states that the NAIC Best
Interest Rule does not impose a fiduciary obligation, but DOL
again fails to establish any resulting harm.\71\ DOL cites no
evidence that the rules and regulations imposed by the SEC and
the NAIC Best Interest Rule are falling short of mitigating
conflicts of interest. Neither did DOL coordinate the 2024 Rule
with the efforts of the NAIC regulators. Iowa Insurance
Division Commissioner Doug Ommen stated at a February 2024 HELP
Subcommittee hearing:
---------------------------------------------------------------------------
\71\Id. at 32,130.
[M]y fellow commissioners and I are not only
concerned with the substance of the DOL's proposed rule
and its potential impact on retirement savers, but also
the DOL's lack of substantive coordination with its
fellow regulators at the state level in developing the
proposal. It was my expectation that DOL would seek to
coordinate with its fellow regulators and understand
existing authorities of the states in this space
because of our overlapping impact on the same
population of companies, industry participants, and
consumers. That did not happen.
I am also disappointed in, and fundamentally disagree
with, this administration's characterization of state
consumer protections of annuity sales as ``inadequate''
and providing ``misaligned incentives.'' The rationale
and justification for DOL's work should stand on its
own as complementary to robust state efforts and should
not mischaracterize differences in regulatory
philosophy as an absence of regulatory competence or
efficacy in this space.\72\
---------------------------------------------------------------------------
\72\Protecting American Savers and Retirees from DOL's Regulatory
Overreach: Hearing Before the Subcomm. on Health, Emp., Lab., &
Pensions of the H. Comm. on Educ. & the Workforce, 118th Cong (2024)
(statement of Doug Ommen, Comm'r, Iowa Ins. Div., at 2).
---------------------------------------------------------------------------
Litigation Challenging the Final Rule
On May 2, 2024, the Federation of Americans for Consumer
Choice (FACC) filed suit in the U.S. District Court for the
Eastern District of Texas to invalidate the 2024 Rule.\73\ On
May 24, 2024, the American Council of Life Insurers (ACLI), the
Insured Retirement Institute (IRI), Finseca, the National
Association of Insurance and Financial Advisors (NAIFA), four
NAIFA Texas chapters, and the National Association for Fixed
Annuities (NAFA) filed suit in the U.S. District Court for the
Northern District of Texas to invalidate the 2024 Rule.\74\ The
2024 Rule is already facing the same litigation challenges the
2016 Rule faced. Unless the rule is quickly halted by a court,
significant resources will be expended to come into compliance
pending a court decision which may yield yet another shift in
the regulatory landscape. Significant resources are already
being spent to bring litigation to overturn the 2024 Rule, and
a significant amount of taxpayer resources will be spent in the
Biden administration's efforts to defend the rule in court.
---------------------------------------------------------------------------
\73\Federation of Am. for Consumer Choice v. Su, No. 6:24-cv-00163
(E.D. Tex. filed May 2, 2024), https://facchoice.com/complaint-facc-et-
al-vs-dol-05-02-2024/.
\74\American Council of Life Insurers v. Su, No 4:24-cv-00482-O
(N.D. Tex. filed May 24, 2024), https://www.acli.com/-/media/public/
pdf/other/2024_05_24_ndtx_4_24_cv_00482_dkt_1_
complaint.pdf.
---------------------------------------------------------------------------
Conclusion
Like the 2016 Rule, DOL's 2024 revised definition of
investment advice fiduciary will lead to reduced access to
retirement products, regulatory burden, and marketplace
confusion. H.J. Res. 142 nullifies DOL's final definition of
investment advice fiduciary and prohibits DOL from issuing a
substantially similar rule. DOL should rescind its harmful rule
and instead ensure it is supporting retirement products and
removing impediments for individuals wishing to save for
retirement.
SUMMARY
H.J. RES. 142 SECTION-BY-SECTION SUMMARY
H.J. Res. 142 resolves that Congress disapproves of the
rule ``Retirement Security Rule: Definition of an Investment
Advice Fiduciary,'' which was published as a final rule in the
Federal Register on April 25, 2024.
EXPLANATION OF AMENDMENTS
No amendments to the resolution were adopted.
APPLICATION OF LAW TO THE LEGISLATIVE BRANCH
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch. H.J. Res. 142 provides for disapproval of the final
rule titled ``Retirement Security Rule: Definition of an
Investment Advice Fiduciary,'' submitted by the DOL, and
therefore would ensure that investments are protected so it
applies to those in the Legislative Branch similar to all
others who wish to save for retirement.
UNFUNDED MANDATE STATEMENT
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act of 1974, Pub. L. No. 93-344 (as amended
by Section 101(a)(2) of the Unfunded Mandates Reform Act of
1995, Pub. L. No. 104-4), the Committee adopts as its own the
cost estimate prepared by the Director of the Congressional
Budget Office (CBO) pursuant to section 402 of the
Congressional Budget and Impoundment Control Act of 1974.
EARMARK STATEMENT
H.J. Res. 142 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI of the Rules of the House of
Representatives.
ROLL CALL VOTES
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include for
each record vote on a motion to report the measure or matter
and on any amendments offered to the measure or matter the
total number of votes for and against and the names of the
Members voting for and against.
STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES
In accordance with clause (3)(c) of rule XIII of the Rules
of the House of Representatives, the goal of H.J. Res. 142, is
to provide for congressional disapproval under chapter 8 of
title 5, United States Code, of the rule submitted by DOL
relating to ``Retirement Security Rule: Definition of an
Investment Advice Fiduciary.''
DUPLICATION OF FEDERAL PROGRAMS
No provision of H.J. Res. 142 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the body of this report.
REQUIRED COMMITTEE HEARING
In compliance with clause 3(c)(6) of rule XIII the
following hearing held during the 118th Congress was used to
develop or consider H.J. Res. 142: On May 1, 2024, the
Committee held a hearing titled ``Examining the Policies and
Priorities of the Department of Labor.''
NEW BUDGET AUTHORITY AND CBO COST ESTIMATE
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee adopts as its
own the cost estimate for the bill prepared by the Director of
the Congressional Budget Office.
H.J. Res. 122 would disapprove a final rule published by
the Department of Labor in April 2024.\1\ By invoking a
legislative process established in the Congressional Review
Act, the resolution would repeal the rule and prohibit the
agency from issuing the same or any similar rule in the future.
---------------------------------------------------------------------------
\1\Department of Labor, ``Retirement Security Rule: Definition of
an Investment Advice Fiduciary,'' Final Rule, 89 Fed. Reg. (April 25,
2024), https://tinyurl.com/46xv3pfb.
---------------------------------------------------------------------------
The rule significantly increases the number of financial
services providers that must act as fiduciaries when providing
advice about retirement plans and decisions. Under that
standard, advisers must act solely in the best interest of plan
participants and beneficiaries.
Repealing the rule is likely to increase fees paid by
investors and may affect the types of investments held in
retirement plans. Therefore, enacting H.J. Res. 142 could
change the income received by firms and individuals, and as a
result, the taxes paid by those entities. However, CBO and the
staff of the Joint Committee on Taxation estimate that any
changes in total federal revenue from enacting the resolution
would be insignificant.
CBO estimates that the administrative costs for the
Department of Labor to implement the resolution would be
insignificant. Any related spending would be subject to the
availability of appropriated funds.
The CBO staff contact for this estimate is Noah Meyerson.
The estimate was reviewed by H. Samuel Papenfuss, Deputy
Director of Budget Analysis.
Phillip L. Swagel,
Director, Congressional Budget Office.
COMMITTEE COST ESTIMATE
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.J. Res. 142.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when, as with the present report,
the Committee adopts as its own the cost estimate for the bill
prepared by the Director of the Congressional Budget Office.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
As reported by the Committee, H.J. Res. 142 makes no
changes to existing law.
MINORITY VIEWS
INTRODUCTION
H.J. Res. 142, Providing for congressional disapproval
under chapter 8 of title 5, United States Code, of the rule
submitted by the Department of Labor relating to ``Retirement
Security Rule: Definition of an Investment Advice Fiduciary,''
would nullify the U.S. Department of Labor's (DOL) final rule
(Retirement Security Rule) ensuring that workers receive
retirement investment advice that is in their best interests.
If enacted, H.J. Res. 142 would reinstate the broken, decades-
old status quo enabling unscrupulous financial advisors to put
their interests and profit motives ahead of their retirement
clients. A broad and diverse group of stakeholder organizations
strongly support DOL's Retirement Security Rule and oppose
efforts to undermine it, including: AARP; AFL-CIO; Air Line
Pilots Association; Alliance for Retired Americans; Amalgamated
Transit Union; American Federation of Government Employees;
American Federation of State, County, and Municipal Employees;
American Federation of Teachers; Americans for Financial Reform
Education Fund; American Postal Workers Union; Bakery,
Confectionary, Tobacco Workers and Grain Millers International
Union; Better Markets; Certified Financial Planners Board of
Standards; Center for American Progress; Center for Economic
and Policy Research; Communications Workers of America;
Consumer Action; Consumer Federation of America; Consumer
Reports; Economic Policy Institute; International Alliance of
Theatrical Stage Employees; International Association of Fire
Fighters; International Association of Machinists and Aerospace
Workers; International Association of Sheet Metal, Air, Rail
and Transportation Workers; International Brotherhood of
Electrical Workers; International Federation of Professional
and Technical Engineers; International Plate Printers, Die
Stampers, Plate Makers and Engravers of North America;
International Union of Painters & Allied Trades; Leadership
Conference on Civil and Human Rights; NAACP; National Active
and Retired Federal Employees Association; National Committee
to Preserve Social Security and Medicare; National Consumers
League; National Education Association; National Employment Law
Project; National Federation of Federal Employees; National
Immigration Law Center; National Organization for Women;
National Treasury Employees Union; National Women's Law Center;
Pension Rights Center; Public Citizen; Public Investors
Advocate Bar Association; Seafarers International Union;
Service Employees International Union; Social Security Works;
Transport Workers Union of America; and UnidosUS.\1\
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\1\See Letter from Save Our Retirement Coalition Members to Sens.
Schumer and McConnell and Reps. Jeffries and Johnson (July 1, 2024),
https://www.saveourretirement.com/_files/ugd/
a1dcf9_a4d27a30772b4ef1a57ba4e057e7a1a8.pdf.
---------------------------------------------------------------------------
BACKGROUND
The Employee Retirement Income Security Act (ERISA) is the
federal law establishing minimum standards for employer-
provided retirement plans.\2\ ERISA's fiduciary standard is
recognized as the highest ethical standard, requiring advisors
to always act in their client's best interest by avoiding
recommendations that puts their own financial interests ahead
of that of the clients. In 1975, shortly after ERISA was
enacted, DOL issued regulations setting forth a five-part test
that must be met for an advisor to be held to ERISA's fiduciary
standard when providing retirement investment advice.\3\
Specifically, under the five-part test, a person is an
``investment advice'' fiduciary under ERISA when: (1) providing
advice or recommendations regarding investing in, purchasing,
selling or with respect to the value of securities or other
properties for a fee; (2) on a regular basis; (3) pursuant to a
mutual understanding with the plan or plan fiduciary; (4) that
the advice serves as a primary basis for investment decisions;
and (5) is individualized.\4\ The 1975 five-part test has not
kept pace with the changed retirement savings landscape. It was
promulgated prior to the existence of 401(k) plans and
widespread investments in IRAs. Defined contribution (DC)
plans, such as 401(k)s, have largely replaced traditional
defined benefit (DB) pensions as the primary retirement plans
offered by employers. According to the Congressional Research
Service (CRS), 27.2 million workers participated in DB plans in
1975 and 11.2 million workers participated in DC plans.\5\ In
2019, 85.5 million workers participated in DC plans and 12.6
million participated in DB plans.\6\ In 2021, workers held
roughly $9.4 trillion in DC plans and $13.2 trillion in
IRAs.\7\
---------------------------------------------------------------------------
\2\29 U.S.C. 1001 et seq.
\3\U.S. Dep't of Labor, Definition of `Fiduciary,' 40 Fed. Reg.
50,843 (Oct. 31, 1975) (to be codified at 29 C.F.R. Sec. 2510.3-
21(c)(ii)(A)-(B)), https://www.govinfo.gov/content/pkg/CFR-2010-
title29-vol9/pdf/CFR-2010-title29-vol9-sec2510-3-21.pdf. [hereinafter
1975 Regulation].
\4\Id.
\5\Cong. Research Serv., IF12007, A Visual Depiction of the Shift
from Defined Benefit (DB) to Defined Contribution (DC) Pension Plans in
the Private Sector (Dec. 27, 2021), https://crsreports.congress.gov/
product/pdf/IF/IF12007 (citing: U.S. Department of Labor, Employee
Benefits Security Administration (EBSA), Private Pension Plan Bulletin
Historical Tables and Graphs: 1975-2019 (Sept. 2021)).
\6\Id.
\7\Cong. Research Serv., IF12117, U.S. Retirement Assets: Amount in
Pensions and IRAs (May 23, 2022), https://crsreports.congress.gov/
product/pdf/IF/IF12117/2.
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The shift from traditional DB plans to DC plans has meant
that workers are ``on their own'' to figure out how to invest
and manage their retirement savings. According to DOL, ``the
shift has been accompanied by a dramatic increase in the
variety and complexity of financial products and services,
which has widened the information gap between investment advice
providers and their clients.''\8\ DOL also notes that ``[p]lan
participants and other retirement investors may be unable to
assess the quality of the advice they receive and may not be in
a position to learn of and guard against the investment advice
provider's conflicts of interest.''\9\
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\8\U.S. Dep't of Labor, Retirement Security Rule: Definition of an
Investment Advice Fiduciary, 89 Fed. Reg. 32122, (Apr. 25, 2024) (to be
codified at 29 C.F.R. pt. 2510), https://www.govinfo.gov/content/pkg/
FR-2024-04-25/pdf/2024-08065.pdf [hereinafter Retirement Security
Rule].
\9\Retirement Security Rule, supra note 8.
---------------------------------------------------------------------------
Given that shift, the 1975 five-part test has loopholes
that can be easily exploited, particularly because every prong
must be met for an advisor to be deemed as providing fiduciary
investment advice. For instance, only advice that is furnished
on a ``regular basis'' is considered fiduciary investment
advice. A small retirement plan may hire an advisor as a
consultant on a one-time basis for an investment
recommendation. According to the Obama-era DOL, ``the plan
could be investing hundreds of millions of dollars in plan
assets, and it could be the most critical investment decision
the plan ever makes, but the adviser would have no fiduciary
responsibility under the 1975 regulation.''\10\
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\10\1975 Regulation, supra note 3.
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Many workers and their families do not have an on-going
relationship with a financial professional but may
understandably hire an advisor on a one-time basis for
investing their retirement nest egg--particularly when they
roll over assets from their workplace 401(k) plan into an
Individual Retirement Account (IRA). This can be the biggest
financial decision of their lives. Unfortunately, there's no
guarantee they will receive retirement investment advice that
is in their best interest. While many advisors do right by
their retirement clients, unscrupulous ones can exploit the
loopholes in the deficient, decades-old five-part test. Such
advisors can steer retirement clients toward investments that
provides a larger financial incentive for the advisors even if
it is not the best choice for the clients. This practice is
known as providing ``conflicted advice,'' and it significantly
harms retirement savers and costs them billions of dollars in
losses every year.
Specifically, according to the Obama Administration's
analysis, conflicted advice costs retirement plan participants
up to $17 billion in losses every year.\11\ If there is
conflicted advice, and a retiree experiences a 100-basis point
(1%) reduction in investment performance as a result of it, but
that person spends down his/her retirement savings as normal,
the savings would be completely depleted more than five years
early.\12\ The Biden Administration is ``especially concerned
about the proper regulation of fixed index annuities.''\13\
Fixed index annuities are complex financial products typically
sold by insurance companies and regulated by state insurance
commissioners. According to the White House Council on Economic
Advisors (CEA), there may be ``strong incentives'' for advisors
to steer their retirement clients toward a fixed index annuity
even if such product is not in their best interest.\14\ The
incentives are in the form of ``large commissions'' paid to the
advisor.\15\ The CEA identified one annuity that provides
commissions ranging from 6.5% for sales to under-75-year-olds
to 3.5% for sales to those over the age of 80.\16\ The CEA
estimates that the cost of conflicted advice in the sale of
fixed index annuities may cost Americans as much as $5 billion
in retirement savings per year.\17\
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\11\The Effects of Conflicted Investment Advice on Retirement
Savings,'' Obama White House Archives (Feb. 2015), https://
obamawhitehouse.archives.gov/sites/default/files/docs/
cea__coi_report_final.pdf.
\12\Id.
\13\U.S. Dep't of Labor, Retirement Security Rule: Definition of an
Investment Advice Fiduciary, 80 Fed. Reg. 75890 (Oct. 31, 2023) (to be
codified at 29 C.F.R. pt. 2510), https://www.federalregister.gov/
documents/2023/11/03/2023-23779/retirement-security-rule-definition-of-
an-investment-advice-fiduciary#citation-195-p75917 [hereinafter
Proposed Retirement Security Rule].
\14\The White House, Council on Economic Advisors, The Retirement
Security Rule--Strengthening Protections for Americans Saving for
Retirement (Oct. 31, 2023), https://www.whitehouse.gov/cea/written-
materials/2023/10/31/retirement-rule/.
\15\Id.
\16\Id.
\17\Id.
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Attorneys who are members of Public Investors Advocate Bar
Association (PIABA) have seen tens of thousands of victims of
conflicted advice.\18\ PIABA indicated that ``[a]lmost every
week'' a retiree comes to their attorneys' offices ``who has
lost a substantial amount of his life savings. These are often
proud, strong workers that have saved to pay off their house,
put their children through college and build a nest egg--all on
middle-income salaries.''\19\
---------------------------------------------------------------------------
\18\Public Investors Arbitration Bar Association, Statement for the
Record Submitted to the U.S. Department of Labor, Employee Benefits
Security Administration, Conflicts of Interest Proposed Rule (Aug. 11,
2015), https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-
regulations/rules-and-regulations/public-comments/1210-AB32-2/written-
testimony-35.pdf.
\19\Id.
---------------------------------------------------------------------------
On February 15, 2024, the Committee's Subcommittee on
Health, Employment, Labor, and Pensions held a hearing
examining the Biden-Harris Administration's proposed Retirement
Security Rule. Mr. Joseph Peiffer, who is the President of
PIABA, testified at the hearing. In his testimony, Mr. Peiffer
noted that ``the difference between getting conflicted
retirement advice and receiving advice in the investor's
interest is sometimes the difference between the retiree being
able to visit their grandkids or not, the difference between
being able to afford a retirement home close to their children
or living with them.''\20\
---------------------------------------------------------------------------
\20\Protecting American Savers and Retirees from DOL's Regulatory
Overreach: Hearing Before the Subcomm. on H, Employ., Lab., & Pensions
of the H. Comm. on Educ. & the Wrkf., 118th Cong. (2024) (testimony of
Joseph Peiffer, President, Public Investors Advocate Bar Association)
(accessible at https://piaba.org/piaba-newsroom/testimony-joseph-c-
peiffer-protecting-american-savers-and-retirees-dols-regulatory).
---------------------------------------------------------------------------
RETIREMENT SECURITY RULE
The Biden-Harris Administration understood the harm that
the broken status quo causes retirement savers. In an effort to
address it, DOL recently finalized a rule that would replace
the 1975 five-part test and update its regulation defining a
``fiduciary'' under ERISA to reflect current practices in the
investment advice marketplace. The Retirement Security Rule
specifies when fiduciary responsibilities attach to a person
who gives investment advice for a fee to an investor in a
workplace retirement plan (such as a 401(k) or an IRA). The
Retirement Security Rule encompasses certain types of advice
that are currently not covered, including:
One-time advice about whether to roll-over a
401(k) into a new retirement account such as an IRA or
an annuity;
Advice about purchasing non-securities such
as fixed-indexed annuities; and
Advice given to plan sponsors and employers
(rather than just plan participants) about the types of
products to include in their plan line-ups.\21\
---------------------------------------------------------------------------
\21\The White House, Fact Sheet: President Biden to Announce New
Actions to Protect Retirement Security by Cracking Down on Junk Fees in
Retirement Advice (Oct. 31, 2023), https://www.whitehouse.gov/briefing-
room/statements-releases/2023/10/31/fact-sheet-president-biden-to-
announce-new-actions-to-protect-retirement-security-by-cracking-down-
on-junk-fees-in-retirement-investment-advice/.
---------------------------------------------------------------------------
Morningstar, which is an investment research company,
assessed DOL's proposed Retirement Security Rule and found that
it ``would have significant benefits for retirement
investors.''\22\ Specifically, according to Morningstar,
participants would save over $55 billion in the first 10 years
and over $130 billion in the subsequent 10 years, in
undiscounted and nominal dollars.\23\
---------------------------------------------------------------------------
\22\Morningstar, Comment Submitted to the Employee Benefits
Security Administration on Definition of Fiduciary--RIN 1210-AC02 (Jan.
2, 2024), https://www.regulations.gov/comment/EBSA-2023-0014-0339.
\23\Id.
---------------------------------------------------------------------------
DOL's Retirement Security Rule aligns with retirement
savers' expectations that they are already receiving investment
advice in their best interest. For instance, according to a
survey conducted by the Certified Financial Planning (CFP)
Board of Standards earlier this year, 92% of those surveyed
already assumed that financial professionals provide retirement
savings advice and recommendations in their clients' best
interests.\24\ Further, nearly 97% of those surveyed broadly
agreed that financial professionals giving retirement savings
advice and recommendations should be required to act in the
best interests of their clients, even if they are giving the
client one-time advice.\25\
---------------------------------------------------------------------------
\24\See Retirement Investor Expectations From Financial Advisors
Survey, CFP Board of Standards (Mar. 11, 2024), https://www.cfp.net/
news/2024/03/cfp-board-survey-americans-want-retirement-investment-
advice-to-be-in-their-best-interest.
\25\Id.
---------------------------------------------------------------------------
CORRECTING THE RECORD ABOUT THE RETIREMENT SECURITY RULE
During the full Committee markup of H.J. Res. 142,
Committee Republicans made several inaccurate comments about
the Retirement Security Rule. It is important to correct the
record.
The Retirement Security Rule Is Substantially Different From the Obama-
era Fiduciary Rule
The Obama Administration sought to address the problem of
conflicted advice by promulgating a rule holding those who
provide retirement investment advice to an ERISA fiduciary
standard. The Obama-era rule faced multiple legal challenges.
Several federal district courts and the 10th Circuit Court of
Appeals upheld it.\26\ However, a three-judge panel of the U.S.
Court of Appeals for the Fifth Circuit vacated the rule in toto
in March 2018.\27\ In its decision vacating the 2016 Obama-era
fiduciary rule, the Fifth Circuit found that it ``swept too
broadly'' and extended to relationships that lacked ``trust and
confidence,'' which the court stated were hallmarks of the
common law fiduciary relationship that Congress intended to
incorporate into the statutory definitions.\28\
---------------------------------------------------------------------------
\26\Mkt. Synergy Grp., Inc. v. Acosta, No. 17-3038 (10th Cir. Mar.
13, 2018); Mkt. Synergy Grp., Inc. v. U.S. Dep't of Labor, 16-CV 4083-
DDC KGS, (D. Kan. Feb. 17, 2017); Chamber of Com. of the U.S. et al. v.
Hugler, No. 3:16-cv-1476-M (N.D. Tex. Feb. 8, 2017); Nat'l Ass'n for
Fixed Annuities v. Perez, 16-cv-1035, 2016 WL 6573480 (D.D.C. Nov. 4,
2016); Thrivent Fin. for Lutherans v. Perez, No. 0:16-cv-03289 (D.
Minn. Sept. 29, 2016).
\27\Chamber of Com. of the U.S. et al v. Acosta, No. 17-10238 (5th
Cir. Mar. 15, 2018) (vacating the fiduciary rule in toto), http://
www.ca5.uscourts.gov/opinions/pub/17/17-10238-CV0.pdf.
\28\Retirement Security Rule, supra note 3.
---------------------------------------------------------------------------
During the Committee markup of H.J. Res. 142, Rep. Rick
Allen (R-GA) said that the Retirement Security Rule is
``nothing more than a revival of an Obama-era regulation.''\29\
This assertion is not accurate. Unlike the 2016 Obama-era
fiduciary rule, the Retirement Security Rule applies only where
it is reasonable to conclude that the advice is individualized,
and that the investor may trust and rely upon that advice.
Moreover, the Retirement Security Rule leaves all business
models intact, including commission-based sales. In contrast
with the 2016 Obama-era fiduciary rule, the Retirement Security
Rule does not require firms to execute contracts warranting
compliance.
---------------------------------------------------------------------------
\29\Comm. on Educ. & Wrkf. Dems., Markup of H.R. 8932, H.R. 2574,
H.R. 2941, H.R. 6319, and H.J. Res. 142, YouTube (July 10, 2024),
https://www.youtube.com/watch?v=KimMkV0D0pM [hereinafter July 10
Markup].
---------------------------------------------------------------------------
The Retirement Security Rule Was the Result of a Full and Fair
Regulatory Process
During the Committee markup of H.J. Res. 142, Rep. Allen
also said that ``DOL's comment process evidenced virtually no
interest in public comments, a clear violation of the
Administration [sic] Procedure Act.''\30\ This statement is not
accurate. DOL provided a 60-day public comment process and
received over 400 individual comments and just under 20,000
petition submissions.\31\ DOL also held a virtual public
hearing on December 12-13, 2023, at which over 40 witnesses
testified.\32\ DOL indicated that it ``made certain changes and
clarifications in the final rule in response to public comments
on the proposal and the testimony presented at the public
hearings.''\33\ For instance, the final rule ``narrows the
contexts in which a covered recommendation will constitute
ERISA fiduciary investment advice.''\34\
---------------------------------------------------------------------------
\30\Id.
\31\Retirement Security Rule, supra note 8.
\32\Id.
\33\Id.
\34\Id.
---------------------------------------------------------------------------
The Biden-Harris Administration's thoughtful and thorough
process for the Retirement Security Rule appears to be
consistent with the Administrative Procedure Act and represents
a clear contrast with how the Trump-era DOL handled a similar
rulemaking. After the Fifth Circuit vacated the Obama-era
fiduciary rule, the Trump Administration took regulatory
action.\35\ The Trump-era DOL reinstated the deficient five-
part test as a final rule without any public comment. It also
issued a proposed Prohibited Transaction Exemption (PTE) to
ERISA and provided only 30-days for the public to comment.
---------------------------------------------------------------------------
\35\See U.S. Dep't of Labor, Improving Investment Advice for
Workers & Retirees, 85 Fed. Reg. 40,834 (July 7, 2020) (to be codified
at 29 C.F.R. pt. 2550) https://www.govinfo.gov/content/pkg/FR-2020-07-
07/pdf/2020-14261.pdf and U.S. Dep't of Labor, Conflict of Interest
Rule--Retirement Investment Advice: Notice of Court Vacatur, 85 Fed.
Reg. 40,589 (July 7, 2020) (to be codified at 29 C.F.R. pts. 2509 &
2510), https://www.govinfo.gov/content/pkg/FR-2020-07-07/pdf/2020-
14260.pdf.
---------------------------------------------------------------------------
Related Rules are No Substitute for the Retirement Security Rule
During the Committee markup of H.J. Res. 142, Rep. Tim
Walberg (R-MI) claimed that ``over the past several years
federal and state regulators have strengthened retirement
investment sales protections'' and cited the Securities and
Exchange Commission's (SEC) Regulation Best Interest (Reg BI)
and the National Association of Insurance Commissioners' (NAIC)
efforts at the state level.\36\ To be clear, neither Reg BI nor
the NAIC's state efforts diminish the need or rationale for the
Retirement Security Rule.
---------------------------------------------------------------------------
\36\July 10 Markup, supra note 28.
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Finalized in 2019, the SEC's Reg BI sought to enhance the
standard of conduct for broker-dealers, but it is limited to
recommendations to retail customers about securities, such as
stocks, bonds, and mutual funds. If an investment professional
provides recommendations about non-securities, such as
investments (e.g., certain insurance products and real estate)
found in some retirement savings plans, Reg BI does not apply.
The Retirement Security Rule would apply a fiduciary standard
to those non-securities recommendations.
Additionally, retirement plans do not meet Reg BI's
definition of ``retail customer,'' so Reg BI does not cover
investment professionals' recommendations made to plan
fiduciaries regarding the investment of plan assets. According
to the Consumer Federation of America, lack of protections for
retirement plans carries significant risk:
The cost and quality of investments offered by a plan
can have a profound impact on a retirement investor's
ability to grow their nest egg over the course of their
career. If the investment options on the menu have high
costs or are low quality, workers would be limited to
investing in options that are likely to underperform
available alternatives, which may mean these workers
retire with less money than they otherwise would have
if they had access to options that were in their best
interest or that they need to work longer to hit their
savings goals. Unfortunately, just like their workers,
many employers do not have particular expertise in
retirement investing. After all, most employers are
small business owners whose main job is not setting up
and administering retirement plans. Because they are
not retirement experts, they often rely on investment
recommendations from the investment professionals who
provide services to their plan.\37\
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\37\Consumer Federation of America, Comment Submitted to the
Employee Benefits Security Administration on Definition of Fiduciary--
RIN 1210-AC02 (Jan. 2, 2024), https://www.dol.gov/sites/dolgov/files/
ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-
AC02/00336.pdf [hereinafter CFA Comment Letter].
The Retirement Security Rule would cover advice given to
plan sponsors and employers about the types of investment
products to include in their plan line-ups.
Insurance products, such as life insurance and annuities,
are regulated by state insurance commissioners, and the NAIC is
a non-profit organization that develops model regulations for
state insurance commissioners. In 2020, NAIC updated its
``Suitability in Annuity Transactions Model Regulation'' (NAIC
Model Rule), which set forth standards and procedures for the
recommendation of annuity products to consumers. The NAIC Model
Rule states that an insurance producer has met their best
interest obligations if they ``have a reasonable basis to
believe the recommended option effectively addresses the
consumer's financial situation, insurance needs, and financial
objectives.''\38\ This is a weaker standard than Reg BI, and
far weaker than ERISA's fiduciary standard. In fact, Section
6(d) of the NAIC Model Rule makes clear that its requirements
``do not create a fiduciary obligation or relationship.''\39\
The NAIC Model Rule has not been adopted by every state and
only applies to annuity products, not the entire range of
retirement savings plan investments. In addition, the NAIC
Model Rule remarkably excludes both cash and non-cash
compensation from its definition of ``material conflict of
interest.''\40\ As a result, the NAIC Model Rule does not
require investment professionals recommending annuities to
mitigate their compensation-related conflicts.\41\
---------------------------------------------------------------------------
\38\National Association of Insurance Commissioners, Suitability in
Annuity Transactions Model Regulation (Spring 2020), https://
content.naic.org/sites/default/files/inline-files/MDL-275.pdf.
\39\Id.
\40\CFA Comment Letter, supra note 37.
\41\CFA Comment Letter, supra note 37.
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This ``fractured regulatory environment has created uneven
protections for investors''\42\ and further underscores the
need for an ``ERISA fiduciary standard that applies uniformly
to all investments that retirement investors may make with
respect to their retirement accounts. Amendments to the ERISA
regulation are necessary to achieve that result.''\43\
---------------------------------------------------------------------------
\42\Better Markets, Background On DOL Rule To Protect Investors
From Conflicts of Interest From Advisers (Oct. 30, 2023), https://
bettermarkets.org/newsroom/background-on-dol-rule-to-protect-investors-
from-conflicts-of-interest-from-advisers/.
\43\Proposed Retirement Security Rule, supra note 13.
---------------------------------------------------------------------------
The Retirement Security Rule is Critical for Workers with Smaller
Account Balances
During the Committee markup of H.J. Res. 142, several
Committee Republicans claimed that the Retirement Security Rule
would hurt workers with small account balances and cited a
study conducted by the Hispanic Leadership Fund to support such
claim.\44\ This study, which was completed in 2021, nearly
three years prior to the final Retirement Security Rule,
focused on the effects of reinstating the Obama-era rule that
was vacated by the Fifth Circuit. The Retirement Security Rule
is not the same as the Obama-era rule. As DOL noted in its
preamble to the proposed rule, ``the paper's findings are not
applicable to the current proposal because it assumes
reinstatement of the 2016 Rulemaking, which was markedly
different than the current proposal. For instance, the 2016
Final Rule required fiduciary advisers to enter into a written
contract with a plan or IRA investor, which is not included in
this proposal.''\45\
---------------------------------------------------------------------------
\44\July 10 Markup, supra note 28.
\45\Id.
---------------------------------------------------------------------------
Not only was the study cited by Committee Republicans not
applicable, their premise that the Retirement Security Rule
would harm low-income individuals and retirement savers with
small account balances is fundamentally flawed. It is these
workers who can least afford to receive conflicted advice and
have the most to lose if the broken status quo is not fixed.
DOL notes that ``small savers are especially vulnerable to the
detrimental effects of conflicted advice. With fewer economic
resources, small savers are particularly susceptible to any
practices that diminish their resources by extracting
unnecessary fees or by yielding lower returns. These savers
cannot afford to lose any of their retirement savings.''\46\
---------------------------------------------------------------------------
\46\Id.
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CONCLUSION
For the reasons stated above, Committee Democrats
unanimously opposed H.J. Res. 142 when the Committee on
Education and the Workforce considered it on July 10, 2024.\47\
We urge the House of Representatives to do the same.
---------------------------------------------------------------------------
\47\One Committee Republican also opposed H.J. Res. 142.
Robert C. ``Bobby'' Scott,
Ranking Member.
Gregorio Kilili Camacho Sablan,
Mark DeSaulnier,
Susan Wild,
Jahana Hayes,
Members of Congress.