Labor Department falters on fiduciary rule

While the political chattering class spent a recent news cycle criticizing a typo from a presidential tweet, the Trump administration’s Department of Labor actually made a meaningful policy error that will affect the lives of millions of Americans. The recent decision by DOL to move forward with implementation of the costly Obama-era “fiduciary rule” will hurt average investors and is a far cry from fulfilling the campaign promise to protect low-cost savings tools.  

Starting in 2010, the Obama administration sought to redefine the regulatory meaning of “investment advice fiduciary” under the 1974 Employee Retirement Income Security Act. Following a failed attempt in the fall of 2011, the administration proposed a reworked fiduciary rule in the spring of 2015 that was finalized last year.

{mosads}Under ERISA, financial professionals providing investment advice and services to people saving for retirement are subject to a series of tests that trigger limitations on the types of services they can provide. The Obama fiduciary rule, set to take effect Friday, expands the triggers such that many forms of financial planning will become illegal.

An estimated 7.2 million individual retirement account holders in America — nearly 60 percent of those saving for the future — will lose access to financial advice services. By forcing nearly $4 billion worth of regulatory compliance costs onto consumers’ investment accounts, the regulation is projected to set the minimum average account balance at $360,000 – more than six times the current average personal investment account. The immediate damage the regulation would do has sparked legal challenges across the country, with opposition so strong that at least one case may be headed for the Supreme Court. 

The impact of this regulation is clear: Low-cost options for financial planning will disappear and retirement saving tools will become a luxury.

Supporters say that the fiduciary rule is necessary because individuals are unable to make decisions about their own money without government intervention. Using flawed methodology, President Obama’s Council of Economic Advisors claimed that new regulations on financial plans could add as much as $17 billion each year to Americans’ retirement accounts.

In reality, demand for savings and investment tools – young Americans report achieving financial freedom as their top goal by a three-to-one margin over the next goal – has made the market for financial planning serve consumers better than ever. That competition fueled improvement is evidenced by digital financial services being used by 71 percent of young savers – when individuals have control over their own money, they seek out the best savings and investment options for themselves. Further, the fiduciary rule’s limitation on access to affordable investment services means that as much as $80 billion will be lost out of personal accounts. 

Within a few short weeks of taking office, President Trump signed an executive memorandum outlining his administration’s concerns with the fiduciary rule. The White House directed the DOL to reexamine the regulation and rewrite it, if necessary. Now, Labor Secretary Alexander Acosta is claiming the administration cannot fulfill this promise because of legal concerns with the Administrative Procedure Act, which establishes the process for executive agency regulation.

Secretary Acosta deserves credit for trying to respect the rule of law, but the APA provides him with options. Given that the president has already ordered the rule to be reviewed for modification or repeal, the APA allows (and common sense demands) that implementation of the rule be delayed until that review is final.

DOL initially issued a delay proposal and concluded that public concerns over implementation were great enough to warrant an extended comment period while the rule is reviewed. Combine the explicit statement of intent to revise or repeal the rule by the new administration with the vast concern expressed to DOL via public comment, and it’s likely that the APA’s “good cause” for delay exception would apply. Instead, Secretary Acosta has chosen to begin the scheduled implementation phase-in on June 9. 

Congress also has the power to prevent implementation of the fiduciary rule. Rep. Joe Wilson (R-S.C.) has introduced legislation, along with 39 cosponsors, to delay the effective date until the regulation can be fully reviewed by the new administration. During the end of Obama’s term, both chambers of Congress worked to defund the rule through the appropriations process. If DOL does not reconsider its delay of the rule until the White House-directed review can be completed, Congress must act to prevent Washington from taking away the financial planning tools on which millions of Americans depend. 

Albert Downs is the senior economic analyst at Americans for Prosperity, specializing in federal fiscal policy. Follow him on Twitter: @albertjdowns

The views expressed by this author are their own and are not the views of The Hill.