The Biden administration unveiled the final version of its fiduciary rule Tuesday, effective Sept. 23.
Like previous attempts, the rule will redefine the definition of fiduciary under ERISA. The unveiling follows the Department of Labor’s proposal released last fall and a 60-day comment period.
“This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest,” Acting Labor Secretary Julie Su said. “Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”
Under the final rule, financial institutions “overseeing investment advice providers” must have policies and procedures in place to manage conflicts of interest and ensure that their providers follow the guidelines.
According to the DOL, the current fiduciary definition for retirement advice, adopted in 1975, had grown woefully outdated with the move away from traditional pensions and towards 401(k) plans, with plan participants and individuals more responsible for their retirement security than ever.
Lisa M. Gomez, the DOL’s Assistant Secretary for Employee Benefits Security, said in a statement about the new rule that it updates standards “that simply are not providing the protections America’s workers need and deserve” in retirement.
Read the final rule
“The investment landscape has changed, the retirement landscape has changed, and it is critical that our regulations are responsive to those changes so that workers can reach the secure retirement that they work for decades to finally achieve,” she said.
Even before the rule’s release, its opponents expressed caution, including Insured Retirement Institute (IRI) President Wayne Chopus, who said early Tuesday he was “not optimistic” about the rule, and that it would “inflict significant harm on consumers.” He predicted it would resemble an Obama-era rule struck down by the Fifth Circuit Court of Appeals in 2018.
“In the brief time the 2016 rule was in effect, it caused millions of consumers to lose access to the professional financial guidance of their choice and to products and strategies to help them achieve a financially secure retirement,” Chopus said. “We anticipate today’s final rule will produce comparable or worse outcomes.”
The DOL unveiled the proposed rule last October as part of President Joe Biden’s effort to curb so-called “junk fees” in the form of high and potentially unsuitable commissions in the retirement advice space.
This rule follows previous administrations’ attempts at their own fiduciary rules, including a version by the Trump administration that was dead on arrival in the Biden White House and the aforementioned Obama-era version.
The DOL followed the proposal with a 60-day comment period, including a two-day public hearing in December, before the final proposal landed at the White House Office of Management and Budget (OMB) for the final stage in the process. Throughout March and April, the OMB met with industry stakeholders, including the CFP Board, the AARP (who supported the rule) and the U.S. Chamber of Commerce and Financial Services Institute (FSI) (who opposed it).
The OMB completed its review earlier this month, leading the rule’s critics to pen a letter to Su requesting that the public comment process be reopened. The letter accuses the Labor Department and OMB of allowing “significant rulemaking flaws” in the process.
Particularly, those groups (including the IRI, FSI, Finseca and others) accused the DOL of fast-tracking the review process with an “unprecedented” public hearing in the middle of the 60-day comment period, which they called “historically short” (though it’s notable that the Trump-era version of the rule originally designated a 30-day comment period).
The FSI has already threatened to sue if the DOL did not withdraw “or substantially improve” the rule, according to President and CEO Dale Brown.
The rule is coming early enough in the year that it has some protection should Donald Trump win the White House in 2024. New rules typically go into effect 60 days after being published in the Federal Register, so it will already be on the books by the time there is a new administration should Biden lose.
However, a new Trump administration could direct the DOL to redo or retract the rule via the Administrative Procedures Act, though that administration would have to offer a reason for establishing a new rule in its place.
The Congressional Review Act also allows Congress to strike a rule finalized at least 60 legislative days before a new president is sworn into office (though Republicans would likely have to hold both houses of Congress as well as the White House to kill the rule via that approach).