DOL Can't Put Fiduciary Duty on IRAs, Ex-Labor Official Testifies
What You Need to Know
ERISA lawyer Campbell, a former EBSA head, testified that the DOL doesn’t have the legal authority to do what it is trying to do
Phyllis Borzi, another former EBSA head, said the department could in fact regulate IRAs.
Rep. Wagner, chair of the Capital Markets Subcommittee, said she couldn’t believe that Labor was still fighting the fiduciary fight.
The Labor Department lacks the legal authority to promulgate its new fiduciary rule, Brad Campbell, partner at Faegre Drinker, and former head of Labor’s Employee Benefits Security Administration, told House lawmakers Wednesday.
During testimony before the House Financial Services Capital Markets Subcommittee, Campbell maintained that the department “doesn’t have the legal authority to do what it is trying to do” because it cannot impose a fiduciary duty as it relates to individual retirement accounts.
“The reason we are here today is that the Proposals go well beyond DOL’s limited authority,” Campbell told lawmakers.
Labor’s plan ”would make DOL the primary financial regulator of $26 trillion, approximately half of which is held by individuals” in IRAs rather than employer-provided plans.
If Labor’s proposals “were limited to redefining fiduciary advice within the department’s actual authority — which is to administer the fiduciary standard expressly created by Congress to regulate employee benefit plans sponsored by private sector employers under Title I of ERISA — we wouldn’t be here today,” Campbell opined.
Such a proposal, Campbell continued, “would be a matter for the [House] Education and the Workforce Committee, unrelated to broader concerns about its effect on capital markets and the responsibility of the Financial Services Committee to regulate insurance, securities, and banking.”
‘Utter Disbelief’
The House Financial Services Capital Markets Subcommittee, chaired by Rep. Ann Wagner, R-Mo., held the hearing Wednesday to examine the DOL’s proposal and its impact on retirement savings and access.
In her opening remarks, Wagner — a staunch critic of Labor’s fiduciary efforts — stated that the current plan is DOL’s “fourth attempt since 2010 at disrupting the client-advisor relationship. DOL was forced to withdraw their first proposal after receiving a flood of opposition from retirement savers and broker-dealers. Then they lost in court — twice — when they tried to revive this harmful proposal.”
Wagner added: “I’ve been pushing back against this misguided effort since I first came to Congress in 2013, and I am in utter disbelief that we’re still having this fight.
“This latest proposal is yet another bite at the same rotten apple. It should be withdrawn immediately,” Wagner stated.
Employer Plans vs. IRAs Under ERISA
If Labor’s plan was finalized, Campbell testified, and those individual accounts in IRAs and annuities were subjected to Labor’s “authority in a manner similar to employer-provided plans, those insurance, securities and bank professionals serving them would now have to comply with a new, highly detailed, and very proscriptive federal regulatory regime led by the Labor Department that would simultaneously apply with — and in many cases, materially conflict with — the requirements of their ‘normal’ state insurance regulation, state and federal securities regulation, or state and federal banking regulation.”
The Employee Retirement Income Security Act regulates employer plans under Title I differently than IRAs under Title II, Campbell explains, and “DOL can’t change that by regulatory action.”
Title I of ERISA governs employer-provided retirement plans, and Title II governs individual savings vehicles, such as IRAs.
“While both enjoy special tax advantages designed to encourage retirement savings, they are not otherwise regulated in the same way,” Campbell explained.
Title I “includes a fiduciary standard of care, and creates a new cause of action to enforce rights under the plan — in Title I, DOL is directly authorized to enforce the fiduciary standard and to bring legal actions,” Campbell explained.
Title II of ERISA “does not contain a standard of care, it does not create a new cause of action, and it does not authorize DOL to do so,” Campbell said.
