The Ministry of Labor for Pensions is now pending


In June, the U.S. Department of Labor proposed an ordinance to align rules for advice on retirement accounts with a different Trump administrative standard. However, delays in completing the proposal, likely due in part to opposition from the financial industry, left it vulnerable to scrapping after President-elect Joe Biden took office.

“Time is running out fast,” said Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute, a trade association for the retirement industry, who criticized some of the proposed regulations.

The Ministry of Labor declined to comment.

One such outcome would be the latest development in a decade-long debate about what responsibility brokers and other advisors have to clients when they provide investment advice on 401 (k) accounts and individual retirement accounts, and how to manage conflicts of interest when selling investments Accounts.

On Tuesday, the Department of Labor submitted the proposal to the White House Bureau of Administration and Budget for review, a step towards finalizing the ordinance.

However, George Michael Gerstein, co-chair of the fiduciary practice at Stradley Ronon Stevens & Young, LLP, said, “The rule will be vulnerable as I don’t think it can take effect until the day of inauguration. I suspect this will be on the new government’s radar. “

A stricter rulebook by the Obama administration, which placed strict restrictions on conflict-ridden investment advice, sparked an industry backlash and was overturned by a federal appeals court in 2018.

Consumer advocates criticized the Trump Labor Department’s proposal to weaken standards under the Employee Retirement Income Security Act of 1974, the federal law that governs 401 (k) plans.

The DOL proposal aims to align the treatment of retirement accounts with the recently issued Best Interest regulation by the Securities and Exchange Commission, which regulates the interactions of brokers with investors in taxable accounts and IRAs. The SEC regulation requires brokers to act in the best interests of clients when making specific recommendations and requires brokerage firms to disclose conflicts of interest and take measures to reduce conflicts of interest, among other things.

Under federal law, 401 (k) plan sponsors and the advisors who serve them are subject to strict standards, including preventing conflicts of interest from affecting investment advice. This prevents them from accepting wages that vary from investment to investment, including sales commissions.

But when it comes to IRAs and the billions of dollars pouring annually on rollovers from 401 (k) to IRAs, consultants are not always considered trustees and may accept sales commissions in certain circumstances.

The proposed rule would result in more regulation of rollover by requiring advisors to act in the best interests of clients when recommending a rollover if the adviser is continually advising clients on retirement assets rather than advising the client 401 ( k) plan.

The financial services industry is critical of this change.

It was “a big move that took the industry by surprise,” said Fred Reish, an attorney who specializes in employee benefits. “The conditions are so demanding that brokers and insurers put up a lot of resistance. I think that’s why it hasn’t been completed yet. ”

Mr Reish said the stricter interpretation – that advisors must act in the best interests of participants in making rollover recommendations – could hold even if the Labor Department’s proposed rule dies.

Barbara Roper, director of investor protection at the not-for-profit Consumer Federation of America, said the move to tighten rollover regulation is a recognition of the importance of securing funds in retirement accounts, which are the primary source of income for many retirees alongside social security.

In general, regulations that did not go into effect prior to the day of inauguration need to be reviewed by the in-depth administration, which has the power to temporarily put them on hold and make changes, said Jason Roberts, executive director of the Pension Resource Institute, a retirement counseling firm.

As soon as the review of the pension account rules by the Office for Administration and Budget has been completed, the Ministry of Labor must complete the rule and publish it in the federal register.

The ordinance usually takes effect 60 days after its publication. Under that schedule, it would not go into effect until Mr Biden took office.

Mr Roberts said the Department of Labor could still complete the rule, arguing that it should go into effect before Mr Biden’s inauguration on Jan. 20.

Ms. Roper said such a move would likely result in a legal challenge. “They gave a 30 day comment period, which was not enough. If they try to go through this last part of the process, it would be evidence of further procedural abuses, ”she said.

Even if the ordinance goes into effect before January 20, Roberts said the Biden administration will likely replace it, although the process could take months.

Regardless of whether or not the proposed regulation goes into effect before the administration changes, labor observers are expected to see the labor department of the Biden administration seek to broaden the definition of who should be considered the trustee for retirement accounts and rollover, and therefore the highest standards of care. They also expect the in-depth administration to propose a system for managing conflicts of interest, including those that arise when selling products like annuities that pay commissions.

“I think a place that is less sophisticated than the Obama era and more sophisticated than the Trump approach is likely to be their focus,” Reish said.

Write to Anne Tergesen at

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