Pressure for New Fiduciary Proposal Mounting

Legislators have suggested that the U.S. Department of Labor re-propose its change to the definition of fiduciary and include more economic analysis.

In testimony before the House Committee on Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions, Donald Myers, a partner in the law firm of Morgan, Lewis & Bockius LLP in Washington D.C., contended it is likely, based on the 201 comments that were filed with the DoL on the original proposal, the testimony at the DoL hearing in March and the 65 additional comments submitted after the hearing, that there will be a number of significant changes to the proposal. “That alone should be a reason for the DoL to re-propose its regulation, in order to give affected firms an opportunity to review the new provisions and comment on how they are dealing with the issues that were raised on the original proposal,” Myers said.

Another reason, according to Myers, is that the proposal did not mention IRAs, except for a brief reference in the opening summary, and provided no economic analysis of the impact on IRAs (the focus of the economic analysis was entirely on ERISA plans). Myers said there should be an analysis of the effect on IRAs, including whether there is any benefit to additional regulation of IRAs under the Code’s prohibited transaction rules in light of the current regulatory regimes that govern the IRA market, and an opportunity to comment on that analysis.  

There also is a need for affected parties to comment on whether any new or modified exemption proposed by the DoL effectively addresses the prohibited transaction issues created by the new rules. Myers noted that the parties will have to determine whether it is feasible for them to operate under the conditions of the exemptions – if the conditions are too complicated or unworkable, the exemptions will not be of any help. This cannot be done unless the exemptions are proposed in conjunction with re-proposal of the fiduciary definition regulation, so that the two can be considered together and modified as necessary based upon the comments. 

“For these reasons, it is my view that if the DoL elects to rely on exemptions to deal with the effects of an expanded fiduciary definition, it should re-propose the changes to the fiduciary definition in coordination with its proposal of exemptive relief,” Myers said. 

In addition, in a statement following the hearing, Bradford P. Campbell, former Assistant Secretary of Labor and partner in the law firm Schiff Hardin LLP, said: “The hearing this morning displayed the most bipartisanship I've seen in 10 years, and the message from the Committee to the Department was very clear--do not proceed to a final rule, but re-propose a revised rule with a valid economic analysis.  Some of the most difficult questioning came from Democrats, such as Representative [Rush] Holt [(D-New Jersey)], who expressed concern that the Department has never had adequate data on either the scope of the problem or the cost of the proposed solution.  The Department would be well-advised to follow the Committee's bipartisan advice, as the rule will be challenged in the courts if they continue on their current path.”  

Myers’ testimony is at  

A replay of the hearing and other testimony can be found at