The U.S. House of Representatives’ Education and Workforce Committee on July 10 voted 23 to 18 to pass a Congressional Review Act resolution to overturn the Department of Labor’s (DOL’s) fiduciary rule.
The fiduciary rule, called the Retirement Security Rule: Definition of an Investment Advice Fiduciary, updates the definition of an investment advice fiduciary under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code so that providers adhere to “high standards of care and loyalty” when recommending investments. It ensures that financial advisors, brokers, and insurance agents are held to the fiduciary standard on rollover individual retirement accounts. The rule was finalized in April and set to take effect Sept. 23.
During the committee markup, Rep. Virginia Foxx, R-N.C., chairwoman of the committee, said the fiduciary rule is a “reckless overreach by the Biden administration.” The resolution to kill the fiduciary rule, H.J. Res. 142, is sponsored by Rep. Rick Allen, R-Ga., and has 31 co-sponsors.
The rule now will move to the full House of Representatives; a vote has not been scheduled.
SHRM Online rounded up additional news on the topic.
What Happens Now
The Congressional Review Act allows Congress to overturn rules issued by a presidential administration through a joint resolution of disapproval. Resolutions must pass the House and Senate and be signed by the president, or Congress must override the president’s veto.
If the legislation were to become law, it would nullify the DOL’s rule. A companion bill in the Senate is co-sponsored by Sen. Joe Manchin, I-West Virginia, which could give the legislation a probability of passing the Senate because Republicans largely oppose the fiduciary rule. But it will likely be vetoed by President Joe Biden.
Separately, the House Appropriations Committee on July 10 voted 31 to 25 to advance an appropriations bill that would prevent the DOL from using funds to implement the Retirement Security Rule.
(PlanSponsor and ThinkAdvisor)
Fiduciary Rule Details
The fiduciary rule, which was originally proposed in October and finalized on April 23, is set to take effect on Sept. 23.
“The final rule and related amended prohibited transaction exemptions require trusted investment advice providers to give prudent, loyal, honest advice free from overcharges,” the DOL said in a statement in April. “These fiduciaries must adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests—financial or otherwise—at the retirement savers’ expense.”
The rule applies a best-interest standard to advice that plan sponsors receive about which investments to include in 401(k) and other employer-sponsored plan lineups. Additionally, the rule clarifies that HR professionals should not be interpreted as giving professional advice when they discuss general aspects of the retirement plan a company provides.
It also “ensures investment professionals can compete for business on a level playing field, instead of being hindered by a skewed system in which different standards exist for advice providers based on the products they recommend,” the DOL said.
Acting Labor Secretary Julie Su said the rule “protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”
Challenges of the Rule
The Federation of Americans for Consumer Choice, an advocacy group for independent insurance agents, filed a lawsuit May 2 challenging the DOL’s fiduciary rule, alleging it is “contrary to law and arbitrary and capricious.”
The group claimed the new rule is similar to a 2016 rule that was struck down in 2018 by a three-judge panel at the 5th U.S. Circuit Court of Appeals in New Orleans.
The lawsuit came shortly after the DOL on April 23 finalized the long-awaited regulation, which aims to modernize and increase investment advice standards for retirement accounts.
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