Barry’s Pickings: The DOL Slow Walk

Michael Barry, president of the Plan Advisory Services Group, discusses the efforts—or lack thereof—of the Trump DOL regarding the fiduciary rule and other initiatives.

Art by Joe Ciardiello

Art by Joe Ciardiello

On December 21, 2017, the Senate confirmed Preston Rutledge as head of the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA).


This action comes more than 11 months after President Donald Trump’s inauguration. For perspective, President Barack Obama’s EBSA nominee, Phyllis Borzi, was confirmed more than five months earlier in the Obama Administration, on July 10 of 2009.


In the year since President Trump’s inauguration, what has the Trump Administration done to transform DOL—to push back against unilateral political initiatives led by the Obama DOL? Next to nothing, and worse.


The Fiduciary Rule


Consider the most controversial action of the entire eight years of the Obama Administration DOL: the Fiduciary Rule.


It has been a full year since President Trump signed a “Memorandum for the Secretary of Labor” instructing the Secretary to “examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” In that regard, the Secretary was to consider whether the rule: (i) “has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings;” (ii) “has resulted in dislocations or disruptions within the retirement services industry;” and (iii) “is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay.”


In response to this forthright direction to take the Fiduciary Rule back to the drawing board what did we get from Trump’s DOL? We got a Wall Street Journal Op-Ed from (Trump) Labor Secretary Acosta that was, to be polite about it, a self-important exercise in virtue signaling disguised as a lecture on civics and the rule of law.


Given the Obama Administration’s actions and statements about this very rule, that was a bit much. Obama EBSA head Borzi told us all in 2014 that “what we’ve done [with the new DOL regulations] is we’ve shifted from the way that social change and legal change and financial change is accomplished through congressional action to two different avenues for making changes: The main one being regulation and the second one being litigation.”


Ms. Borzi bragged about how DOL “had to be creative to try to find a way to make the responsibility for acting in your client’s best interest, the fiduciary responsibility, enforceable in the IRA context.” For the very obvious reason, no one ever before had thought that DOL had any business regulating IRAs at all, much less dictating the compensation practices of IRA providers.


In implementing the Fiduciary Rule, DOL jettisoned 80 years of Securities and Exchange Commission (SEC) policy, finding that “extensive research” has proven that “[d]isclosure alone has proven ineffective to mitigate conflicts in advice.” And that “even if disclosure about conflicts could be made simple and clear, it would be ineffective—or even harmful.”


Then there is the matter of the “finding,” produced by the Obama Council of Economic Advisors specifically for this regulatory effort (which should in itself call into question its objectivity) and based on a review of research much of which was outdated and underpowered, that “conflicted advice” costs investors $17 billion a year. This finding was (still) in April 2017 part of the economic analysis on which DOL relied in evaluating the costs of putting the Fiduciary Rule into effect in June 2017.


In implementing the Fiduciary Rule, the Trump DOL noted that some commenters objected that “the 2016 [Fiduciary Rule] wrongly applied published research to estimate investor gains and/or failed to properly account for social costs such as potential loss of access to financial advice.” DOL dismissed these objections, claiming that they “largely echo comments made in response to the Fiduciary Rule when it was proposed in 2015, and that were addressed in considerable detail in the 2016 [Fiduciary Rule],” and which (summarizing in the interests of brevity) the Department had already rejected. Nevertheless, albeit somewhat reluctantly, DOL conceded that it would “review the 2016 [Fiduciary Rule’s] conclusions as part of its review of the Fiduciary Rule and PTEs directed by the Presidential Memorandum.”


All of which will take place (if at all) after the rule went into effect. Kind of sounds like they think “we heard you last year (when President Obama and Assistant Secretary Borzi were still running things) and concluded you were wrong. There’s not much chance of us changing our minds, so we’re going to implement this regulation. But the Presidential Memorandum, blah blah blah.” Come on: if these comments simply “echo” those made in 2015 and 2016, and DOL already addressed them in “considerable detail” before President Trump issued his memorandum, why should any review be necessary?


Does anyone actually believe that DOL has done anything towards even beginning a review of these economic findings? The most obvious thing would be to ask the Trump council of economic advisers (CEA) to take a look at this issue. I’m pretty sure that hasn’t happened.


Finally, we note that, in implementing the Fiduciary Rule in June 2017, DOL ludicrously claimed that it was “among the least controversial aspects of the rulemaking project.”


And nearly everything else


The delay and death-by-inaction of a thorough review of the Fiduciary Rule is just one (albeit the most glaringly obvious) example of fairly comprehensive foot-dragging by the Trump DOL in taking on political initiatives by President Obama’s (apparently more competent or at least more responsive to Administration leadership) Department of Labor.


Consider the items identified in this column over a year ago:


Policy on 401(k) fee issues generally: The Obama EBSA made 401(k) fees the centerpiece of its retirement plan regulatory efforts. One would hope that a Trump DOL would be open to more market-based solutions to the issue of improving the efficiency of the system. So far, we’ve seen no evidence of this.


Form 5500 revision: Two major industry groups—the American Benefits Council (ABC) and the ERISA Industry Committee (ERIC)—have called for withdrawal and reconsideration of the proposed revision of the Form 5500. To repeat what I said last January: reconsideration of this proposal looks like low-hanging fruit. So far, no action.


The state plan initiative: We have Congress to thank for the repeal of the Obama DOL’s “path forward” for mandatory state retirement plans. From DOL we’ve gotten nothing—no reconsideration of the related Interpretive Bulletin on state sponsored MEPs, which privileged states’ “unique representational interest in the health and welfare of its citizens.” Indeed, while we’re on that topic, no initiative on open multiple employer plans (MEPs).


Electronic participant communications: After years of DOL resistance, why isn’t the Trump DOL moving to modernize processes here?


DC annuity safe harbor: Nearly all agree that the major regulatory obstacle to including annuities in 401(k) plans is sponsor concern about fiduciary liability exposure. There is a very reasonable proposal from the American Council of Life Insurers (ACLI) to fix this problem, by creating a safe harbor that defers the issue of insurer insolvency risk to state insurance regulation. Again, from the Trump DOL, nothing.


Finally, let me re-repeat something I said a year ago about process: Why the heck does the DOL regulatory process take so ridiculously long? Are we supposed to resign ourselves to a Kafka-esque bureaucratic culture? I thought this was an Administration that prided itself on getting things done?


Where is the proposal on retirement income disclosure—proposed (as an “Advance notice of proposed rulemaking,” whatever that is) in 2013? Is DOL simply too timid to pick between different disclosure options?


Ms. Borzi’s suggestion, in 2014, that the legislative process is broken and that only EBSA can save the day looks a little ridiculous now. Congress seems much more capable of acting (e.g., the repeal of the state plan regulations) than does the Trump DOL.


Of course, what it really looks like is what it always was. In 2016, Democrats controlled the Administration and used that control—in the face of robust Congressional opposition—for all it was worth. Concerns about the democratic process be damned.


Secretary Acosta and his DOL seem more concerned with looking good and being thought responsible than with getting anything done.


Maybe Mr. Rutledge can change that. One can hope.



Michael Barry is president of the Plan Advisory Services Group, a consulting group that helps financial services­ corporations with the regulatory issues facing their plan sponsor clients. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly about retirement plan and policy issues.


This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Asset International or its affiliates.