Barry’s Pickings Online: Trump DOL Mid-Term Report Card

Michael Barry, president of October Three (O3) Plan Advisory Services LLC, offers his opinions about retirement plan issues addressed—and not addressed—by the Department of Labor under President Donald Trump.
Art by Joe Ciardiello

Art by Joe Ciardiello

Before reviewing specifics, some general remarks about the performance of the Trump Department of Labor (DOL)/Employee Benefit Security Administration (EBSA) on retirement policy issues: From the start, this agency faced a couple of significant obstacles. First, there was delay (and some controversy) getting a Secretary of Labor and an Assistant Secretary for the EBSA confirmed. The latter (Preston Rutledge) did not take over at the EBSA until the end of 2017, by which time a number of important policy decisions (critically, with respect to the Fiduciary Rule) had already been made.


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Second, the intense controversy that has surrounded the Trump Administration, the lack of any working relationship with the opposition, and widely publicized defeats in the courts for certain Trump policies (e.g., on immigration) may have discouraged DOL leadership from sticking its neck out on controversial issues.


In this context, and despite some critical remarks in what follows, I’m inclined to cut the Trump DOL some slack. Perhaps the best that can be said for it is that it has, for the most part, on the issues for which it is responsible, not made things worse. And worse things could have happened on any number of issues, including the Fiduciary Rule, authorization of state plans, and social investing.


That said, here are my Trump DOL mid-term grades:


Fiduciary Rule (Grade: B-): In February 2017 President Trump signed a “Presidential Memorandum” instructing DOL to “examine the Fiduciary Duty Rule to determine whether it “has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings,” “has resulted in dislocations or disruptions within the retirement services industry,” and “is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay.”


In February of 2018 (the anniversary of the Trump Memorandum), I commented at length on DOL’s foot dragging with respect to this re-examination, contrasting it with the aggressive and “creative” efforts of the Obama DOL in advocating for and pushing through the rule in the first place. Briefly, in implementing the Fiduciary Rule (in the first half of 2017), the Trump DOL dismissed objections that it had “wrongly applied published research” and asserted—in the face of obvious evidence to the contrary—that the Fiduciary Rule itself (as distinct from the Best Interest Prohibited Transaction Exemption) was “among the least controversial aspects of the rulemaking project.”


Those who (in the words of President Trump’s Press Secretary) believed DOL had “exceeded its authority,” and saw the rule as “a solution in search of a problem,” were rescued by the 5th U.S. Circuit Court of Appeals, which in March 2018 vacated the rule in toto.


In all likelihood, a Clinton Administration would have appealed that decision. And the Trump DOL has not started any new fee-related initiatives. So, it could have been worse.


“Social Investing” (B+): For those who might hope that retirement investment policy, unlike (say) the weather and sports, might remain relatively neutral turf for the Blue Team and the Red Team, the zig-zagging of DOL policy with respect to ESG (environmental, social and governance) factors is an unhappy story. In April 2018, the Trump DOL further “clarified” the Obama DOL’s prior guidance (which itself had “clarified” Bush DOL guidance “clarifying” Clinton DOL guidance) that “collateral goals” may be used as “tie-breakers,” stating (in a Field Assistance Bulletin) that this only meant that “there could be instances when otherwise collateral ESG issues present material business risk or opportunities … that qualified investment professionals would treat as economic considerations under generally accepted investment theories.”


No doubt, when a Democratic Administration takes office, this policy will be further “clarified” (if not actually made more clear). For what it is worth, I think the policy described in the 2018 FAB is about right.


Open MEPs (B/B-): On August 31, 2018, President Trump signed an Executive Order on Strengthening Retirement Security in America. Among other things, the order instructed DOL to “clarify and expand the circumstances under which United States employers, especially small and mid-sized businesses, may sponsor or adopt an MEP.” This was widely understood (perhaps, misunderstood) as an instruction to DOL to consider authorizing open MEPs (multiple employer plans offered by, e.g., providers to groups of unrelated employers).


The primary obstacle to open MEPs is DOL’s position that all employers in a MEP must have a “commonality of interest.” In the event, DOL (on October 22, 2018) proposed a regulation that only “expanded” the current commonality of interest standard by extending it to employers located in a single State or metropolitan area, while prohibiting anyone whose business was “offering and providing MEP coverage” from offering one. It explicitly did not propose authorizing open MEPs, explaining that it “considered, but decided not to include [them] … because they implicate different policy concerns.”


There are some legitimate policy concerns presented by provider-based retirement plans (like open MEPs), critically the absence of an independent fiduciary. These concerns may not be address-able by regulation, and there are bipartisan proposals that do address them in Congress. It is, however, disappointing that DOL did not more fully consider the issue.


Electronic participant communications (Incomplete): The August 2018 Executive Order also instructed DOL to (within one year and in consultation with Treasury) review current disclosure rules and explore “the potential for broader use of electronic delivery as a way to improve the effectiveness of disclosures and to reduce their associated costs and burdens.” Adoption of electronic communication-friendly disclosure rules is something that is long overdue. I had hoped that DOL would have moved on this sooner. We shouldn’t have needed an Executive Order to spur them to action. Hopefully we will see action on this in 2019.


DC annuity safe harbor (B-/C). It’s widely understood that one of the main reasons (probably the main reason) most sponsors are reluctant to add an annuity option to their 401(k) plans is concern about long-run fiduciary exposure. There is more than one bipartisan Congressional proposal to solve this problem by, in effect, deferring to state insurance regulation. DOL could do this by regulation. Yes there are issues, but on balance it would seem that the gains—plans with adequate retirement income solutions—outweigh the risks. So far, we’ve heard nothing from DOL on this.


Clearinghouse PTE and Advisory Opinion (A): On November 7, 2018, DOL published a Notice of Proposed Exemption Involving Retirement Clearinghouse, LLC (RCH), addressing a potential prohibited transaction issue presented by RCH’s clearinghouse “locate, match, and transfer” model and provided an Advisory Opinion clarifying the fiduciary status of the “old employer,” the “new employer” and RCH under this model. As a long-time advocate of the establishment of a clearinghouse, I view this as very good news.


Ongoing missing participant audits (D): DOL is reported as continuing to pursue (some would say, “aggressively pursue”) missing participant audits, while deflecting requests for explicit guidance on how missing participants should be treated. Perhaps there is something about this I do not understand, but it appears to be a classic example of irresponsible agency action. Please tell us what you want us to do before punishing us for not doing it.


Finally, no news is good news (A): DOL (so far as I am aware) has not pursued Obama Administration projects to revise Form 5500 and to find a “path forward” for state retirement plan initiatives. These non-actions are, in my view, a good thing.


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I regard any fundamental change in approach to these issues by DOL in 2019 as unlikely. To repeat what I said at the beginning (and in the middle): it could be worse.


“A Zen dog dreams of a medium-sized bone.” – Jaspar Fforde



Michael Barry is president of October Three (O3) Plan Advisory Services LLC, and author of the new book, “Retirement Savings Policy: Past, Present, and Future.” 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 Strategic Insight or its affiliates.