Opponents of the Department of Labor’s retirement security proposal testified at a Congressional hearing Thursday that the proposal would dramatically decrease access to advice for smaller account holders, while proponents argued it is a necessary regulation to reduce and mitigate investor abuses.

The U.S. House of Representatives Committee on Education and the Workforce Subcommittee on Health, Education, Labor and Pensions hosted the hearing, in which witnesses testified to the DOL’s retirement security proposal, often called the fiduciary proposal. The changes to regulation, currently under review by the DOL’s Employee Benefits Security Administration, would expand fiduciary duties under the Employee Retirement Income Security Act to a wider range of recommendations and would include rollovers, investment menu design and annuity sales.

Support for the Proposal

Joseph Peiffer, president of the Public Investors Advocate Bar Association, was called to testify by Democrats on the committee to represent victims of conflicted advice. He testified that “none of the people that I have ever represented realized that their adviser might be held to a standard below that of a doctor or an attorney” and added that some financial “firms advertise like they have the duties of doctors but litigate like they owe more duty than a used car salesman.”

The proposal will ensure retirement savers get the advice “they deserve and that they believe they are already getting,” Peiffer told committee members.

Current regulatory frameworks do not adequately protect retirement savers, Peiffer argued. Regulation Best Interest, a rule enforced by the Securities and Exchange Commission that requires advisers to mitigate conflicts and provide tailored advice, “does not cover advice to plans,” because it only applies to retail investors. He noted that retirement plan sponsors are not considered retail investors regardless of their actual size or financial sophistication, referring to an element of the proposal that would make investment menu design sales, often a one-time transaction, fiduciary advice. According to a comment letter from Morningstar, this part of the proposal could save small businesses up to $55 billion in excessive fees.

Peiffer was also sharply critical of the notion that the proposal would limit access to financial products to lower-income savers. He noted that small accounts “can least afford to have conflicted advice,” and evidence to the contrary comes solely from “industry-funded studies.” He noted that smaller accounts still have access to advice outside the retirement context after SEC’s Reg BI was enacted, despite it being very similar in substance to the DOL’s proposal.

Representative Susan Wild, D-Pennsylvania, concurred, saying that studies showing a large decline in access were “done by trade associations, and that’s what’s being relied upon.”

Lastly, Peiffer argued that the National Association of Insurance Commissioners’ model regulation, which governs annuity sales in 42 states, is inadequate because it does not require insurance agents to “even count compensation as a conflict.” He added that “if compensation isn’t a conflict, then what is it?”

Opposition to the Proposal

Though it is true that the NAIC regulation does exempt compensation from material conflicts of interest, Thomas Roberts, a principal in Groom Law Group, testified that insurance producers “are duty bound to consider the cost” of a product when making a recommendation. He added that “the mere fact that a professional salesperson receives some compensation, in and of itself, is not a conflict with their best interest obligation.”

Supporters of the proposal have long argued that the SEC’s Reg BI and the NAIC model regulation are adequate to address the abuses the DOL is concerned about and that the proposal, at best redundant, at its worst would sharply reduce access to financial products for lower-income savers.

Doug Ommen, the insurance commissioner for Iowa, testified in opposition to the proposal, noting that the NAIC regulation, like Reg BI, prohibits product-specific sales quotas and contests due to the obvious conflicts they can create.

Roberts explained that the proposal would impose a greater regulatory burden, and large segments of the population would either be “unserved altogether or underserved.” Since imposing ERISA duties and obligations would increase costs and limit the compensation advisers could collect, he argued that it would become uneconomical to serve smaller accounts.

Jason Berkowitz, the chief legal and regulatory affairs officer at the Insured Retirement Institute, testified that since commission-based professionals “get paid only if they complete a transaction, they have a vested interest in completing the transaction. That vested interest doesn’t prevent them from acting in the client’s best interest, but it does mean they can’t realistically meet a sole interest standard.” As a consequence, they would be forced to increase minimum balances for the accounts they service.

The hearing came as the DOL’s EBSA considers potential adjustments to the proposal before moving it forward. The proposal, first made in October 2023, has already gone through a 60-day public comment period, with EBSA taking that feedback into consideration in its final rulemaking.

Tim Hauser, EBSA’s deputy assistant secretary for program operations, said in a recent interview that if adviser present themselves as acting in investors’ best interest, they “should be held to that standard.”