On taking office as Secretary of Labor, Alexander Acosta published an editorial in the Wall Street Journal announcing that “President Trump has committed—and rightly so—to roll back unnecessary regulations …. As the Labor Department approaches this regulatory rollback, we will keep in mind two core principles: respect for the individual and respect for the rule of law.” Apparently, the latter principle required ongoing support for a regulation—the Fiduciary Rule—that many regarded as testing the limits of his agency’s regulatory authority.
It is one of the unusual ironies of this ironic time—when we have a current President who spent a considerable amount of his public life pre-Presidency challenging the prior President’s citizenship status—that President Trump’s pick for a new Secretary of Labor—Eugene Scalia—represented one of the main plaintiffs in the lawsuit against Secretary Acosta challenging the Department of Labor’s (DOL)’s Fiduciary Rule, characterizing it as “a leading example of the kind of regulatory overreach that the White House counsel and other White House officials have criticized.”
The Acosta retirement policy record
In real life, the DOL under Secretary Acosta did not do a lot—in the area of retirement policy—to accomplish President Donald Trump’s “roll back unnecessary regulations” or to adopt policies that a bipartisan consensus recognizes as needed.
For the first year or so, the Acosta DOL expended significant effort defending and explaining and tweaking the Fiduciary Rule. Until the 5th U.S. Circuit Court of Appeals, in March of 2018, vacated it, finding that it was “inconsistent with the entirety of ERISA’s ‘fiduciary’ definition” and that the DOL “lacked statutory authority to promulgate the Rule.” So much for the rule of law.
In key areas where innovation was needed—liberalizing the rules on electronic participant communications, authorizing a defined contribution (DC) plan annuity safe harbor, and developing a path forward for open multiple employer plans (MEPs)—the Acosta DOL has moved very slowly, or not at all. They have a (yet to be published) project on electronic communications and recently released a request for information on open MEPs.
During the past two and one-half years, in addition to ongoing work on the definition of “investment advice” (about which there is a lot of skepticism), the DOL has tweaked (marginally) the environmental, social and governance (ESG) investing rules and extended the “association MEP” rules to state and municipal chambers of commerce, which, as far as I know, weren’t asking for MEP authority.
Right now there is a bill in Congress—the SECURE Act—that won a massive, bipartisan, 417-3 majority in the House. It includes several provisions that in fact could be implemented by the DOL through regulation, in a relatively short period of time. To take the easiest example, the DC annuity safe harbor could be proposed tomorrow as a regulation. Everyone supports this. Why hasn’t the DOL simply acted on it?
The issue of open MEPs is, arguably, more complicated—but, to judge by its recent “association MEP” regulation, DOL’s view of its latitude in defining who is an “employer” under the Employee Retirement Income Security Act (ERISA) Section 3(5) certainly seems expansive enough to meet those complexities.
My sense is that the permanent staff at the DOL still thinks they were right (whatever the 5th Circuit may say) on the Fiduciary Rule. They don’t like open MEPs—and basically see the possibility of a provider-based retirement system as fraught with “conflicts of interest.” Just to be clear, the kind of conflicts of interest they are wothe rried about here are those inherent in the profit motive—the kind of “conflict” that a store owner has with its customers—the fact that providers want to make a profit from the services they provide. And the DOL staff is not about, on their own initiative, to create a DC annuity safe harbor that takes the employer-fiduciary off the hook. They’ve had this proposal in front of them for years and have done nothing.
My bottom line: Acosta ran the DOL/Employee Benefit Security Administration (EBSA) the way a generic manager would run a generic agency. He made no meaningful attempt to change the fundamental policies developed by the Obama/Borzi EBSA over eight years. Policies that President Trump had committed to “roll back.”
What a new Secretary can do
What is it going to be like if, and hopefully when, Eugen Scalia—one whose most recent jobs was suing the DOL on its signature retirement policy initiative—takes over as Secretary? The following would be a good start:
Investment advice: (1) Provide guidance that waives any legal problems that have been created by (in effect, premature) compliance with the now-vacated Fiduciary Rule, including letting retirement plan sponsors and providers “reboot” to the old system. (2) Clarify that the Securities and Exchange Commission (SEC) Regulation Best Interest (Reg. BI) has no effect on prior (and pre-Fiduciary Rule) guidance with respect to such issues as ERISA fiduciary status or the definition of investment advice. (3) Clarify the extent of plan sponsors’ duty-to-monitor compliance with the new Reg. BI.
Electronic participant communications: Adopt robust electronic/default guidance as soon as possible.
DC annuity safe harbor: Adopt the SECURE Act proposal, which generally defers to state insurance regulation on the issue of the financial condition of the annuity carrier, as soon as possible.
Open MEPs: Let’s have a full airing of the relevant concerns—rather than talking points. Let’s have those outside of the DOL who oppose open MEPs explain why they think there is an inherent risk of abuse in “profit seeking enterprises” and why they think that states, municipalities, and non-profits would be better and more efficient at running plans, and more “fair” to participants, than providers. And then let’s move forward with a workable solution that will make retirement services cheaper for smaller enterprises.
A better process
Finally, I want to repeat something I said back in January 2017: The DOL should, in my humble opinion, be moving the regulatory process along much faster. We should have had something on electronic participant communications and a DC annuity safe harbor in 2017. It seems that where agencies are given hard deadlines they are able to meet them. Maybe that should be the norm.
Obviously, it’s easy for an outsider to criticize this process. But can we have some accountability-for-efficiency from this agency? Or is this really a (much easier) problem of simply setting the priorities?
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I have high hopes for a Scalia DOL. Scalia seems to be very competent and to have very good instincts.
The first challenge, of course, will be to get him confirmed.
Michael Barry is president of O3 Plan Advisory Services LLC. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly http://moneyvstime.com/ about retirement plan and policy issues.