‘Labor’ Day on Capitol Hill
While all eyes have been on the latest tax reform changes, there were two important hearings taking place on Capitol Hill Nov. 15 concerning the Department of Labor (DOL).
Labor Secretary Alexander Acosta testified before a key House committee on the DOL’s priorities, while Preston Rutledge — nominated to be Assistant Secretary of Labor for the Employee Benefits Security Administration — appeared
before the Senate Health, Education, Labor and Pensions Committee to answer questions about his nomination. Acosta: Transition Extension Out Soon
While Labor Secretary Alexander Acosta did not necessarily shed much new light on the status of the fiduciary rule, he did address a few other retirement-security issues at a hearing that focused largely on workplace policy issues.Appearing
before the House Committee on Education and the Workforce to discuss the DOL’s policies and priorities, Acosta testified that the final notice to delay the fiduciary rule’s transition rule from Jan. 1, 2018, to July 1, 2019, will be published soon, while the department continues its analysis.
Asked by Rep. Phil Roe, MD (R-TN) about the status of the best interest standard, Acosta noted that the standard did go into effect in June, but that the part of the rule that had remedy options available are included in the notice that is pending at the Office of Management and Budget. “The title of that notice would make clear that there is an 18-month extension if that notice goes forward,” Acosta explained.
Acosta also reminded members of his May editorial
in The Wall Street Journal
(subscription required) in which he suggested that the SEC should be a partner in rulemaking process and collaborate with the DOL on the fiduciary rule. Acosta noted that the SEC declined to be a partner with the DOL in the past administration in developing a fiduciary rule, adding that he believes the agency has an important role to play.
When asked by ranking member Bobby Scott (D-VA) what would happen if a retiree is not provided advice that is in their best interest during the transition period, Acosta explained that as long as companies are proceeding in good faith to implement the best interest standard, the DOL is working in “compliance assistance mode,” but if companies are not proceeding in good faith, he noted the DOL still has enforcement authority. Support for ESOPs
Acosta also clarified to the committee that the DOL supports for ESOPs. Inquiring whether the DOL is hostile to the formation of ESOPs, Rep. Brett Guthrie (R-KY) noted that there had been more enforcement actions against ESOPs during the eight years of the previous administration than there had been over the past 35 years.
Guthrie further contended that the enforcement actions always started with subpoenas and suggested that ESOPs need an adequate regulatory regime that allows them to flourish and grow. In response, Acosta said that, as a policy matter, he does not have any concerns about ESOPs and believes they have many advantages, including that they empower employees by making them feel they have an ownership stake in the company with “skin in the game.” Multiemployer Plans
Acosta acknowledge that the multiemployer system faces major problems. Asking what steps the DOL is taking to address plan solvency issues, Rep. Bradley Byrne (R-AL) noted that underfunded plans threaten the entire system and the PBGC estimates that there are more than 100 plans that are either in critical or declining status. Acosta told the committee that the issue is “pass the point of an easy solution” and is something the department will have to work closely with Congress on to address. State Issues
Rep. Suzanne Bonamici (D-OR) noted that Congress and the Trump administration rolled back the regulatory framework for state-based retirement programs, while states such as Oregon stepped up to allow employers that do not have retirement plans to offer plans.
When asked to respond to that development, Acosta noted that the Bureau of Labor Statistics is currently conducting a study on workers in the gig economy that should be released this spring and suggested that Congress and the DOL engage in a larger discussion after that report comes out. Rutledge Appears Before Senate HELP Committee
Many of the questions posed to Rutledge at his nomination hearing addressed other areas under EBSA’s purview, but ranking member Patty Murray (D-WA) did inquire about his position on the DOL’s fiduciary rule, pointing to President Trump’s memorandum directing the DOL to review the rule and the proposed second delay of the transition period.
As EBSA assistant secretary, one of the top items on Rutledge’s agenda would be overseeing the implementation of, and any potential changes to, the fiduciary rule.
“I understand that you have expressed your discomfort with the fiduciary rule. Given that conflicted advice costs about $17 billion annually, do you support delaying this rule?” Murray asked Rutledge.
Rutledge explained that, because he is not at the DOL right now, he cannot commit the department to a position on how to proceed on the rule, but he did offer some thoughts on the process.
“I have reviewed the presidential memorandum and it appears to me to direct the department to review the rule, but to review it from the perspective like ERISA has always been, in my experience, from the perspective of the investor, the participant, the worker and the retiree,” Rutledge told the committee. He further explained that it is important to make sure “you are not hurting these people; ERISA is very participant-centric.”
Rutledge also addressed Murray’s contention that he is opposed to the rule. Pointing to a quote that Murray apparently pulled from a news article, Rutledge told the senator that he never said he had discomfort with the fiduciary rule. He explained that, at the time, the Treasury Department was not involved in the rulemaking process with the DOL, but would have been charged with overseeing excise taxes triggered under the rule. He noted that Senate Finance Committee Chairman Orrin Hatch (R-UT) felt that if the fiduciary rule was going to create additional work for the Treasury Department, it was important for the agency to “at least be at the table.”
The American Retirement Association submitted a statement for the hearing record expressing strong support for the confirmation of Rutledge. His nomination still has to be approved by the Senate HELP Committee, as well as the full Senate.