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Pensions, Politics and the ERISA Fiduciary Standard

Posted on January 29, 2014 by Susan Mangiero

Thanks to the folks at the Mutual Fund Directors Forum for disseminating a January 13, 2014 letter from members of the New Democrat Coalition to the Honorable Thomas Perez. Secretary of the U.S. Department of Labor (DOL). The gist of the four-page communication is that these members of the current U.S. Congress would like to see regulatory coordination in order to protect investors while reducing confusion. They add that they are still concerned that a new version of the fiduciary standard, when proposed anew, might discourage plan participant literacy and disclosures. The worry seems to be that individuals with low or middle incomes as well as small businesses could be adversely impacted, depending on the ultimate version.

According to the Securities Industry and Financial Markets Association (SIFMA ) website, Republicans have likewise communicated their concerns to the U.S. Department of Labor as well as the Office of Management and Budget. These ranged from the impact on an individuals’ choice of provider to potential unintended consequences limiting access to education for millions of individuals saving for retirement. Click to access SIFMA’s DOL Fiduciary Standard Resource Center .

On October 29, 2013, the Retail Investor Protection Act (H.R. 2374), sponsored by U.S. Congresswoman Ann Wagner (Republican, 2nd District of Missouri), was approved by the United States House of Representatives in a vote of 254 to 166. According to the Gov Track website, U.S. Congressman Patrick Murphy (Democrat, 18th District of Florida) joined as a co-sponsor on September 19, 2013. The stated legislative intent is to preclude the Secretary of Labor from prescribing any regulation under the Employee Retirement Income Security Act of 1974 (ERISA ) defining the circumstances under which an individual is considered a fiduciary until 60 days after the Securities and Exchange Commission (SEC) issues a final rule governing standards of conduct for brokers and dealers under specified law. It further prevents the SEC from implementing a rule establishing an investment advisor standard of conduct as the standard of conduct of brokers and dealers prior to assessing the likely impact on retail investors. Click to read more about the Retail Investor Protection Act. Click to read the mission of the United States Department of Labor which states To foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights.

As I have repeatedly predicted in this pension blog and elsewhere, the retirement crisis, not just in the United States but around the world, is increasingly showing up as a political hot button issue. No one wants to lose votes from retirees who are struggling and employees who cannot afford to stop working any time soon. In his State of the Union address, U.S. President Obama described a new type of retirement account, i.e. myRA, that is meant to help millions of individuals whose companies do not offer retirement plans. See What you need to know about Obama’s ‘myRA’ retirement accounts by Melanie Hicken (CNN Money, January 29, 2014). More details will no doubt follow.

There is a lot we don’t know about how politics will impede or enhance the state of the global retirement situation. As a free marketeer, I am not particularly optimistic about new rules and regulations that prevent an efficient supply-demand interaction from taking place. However, this is a lengthy topic and the hour is late so I will leave a discussion about the positive and normative aspects of capitalism for another day.

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