In a speech on the Senate floor, Finance Committee Chairman Orrin Hatch (R-Utah) noted the unnecessary burden the Department of Labor’s new fiduciary rule places on Americans trying to prepare for their future and urged colleagues to support the Congressional Review Act resolution of disapproval.
“This rule will reduce the availability of investment advice for retirees and make the advice that is available more expensive. Higher costs and a more burdensome system also means more expenses for small businesses trying to sponsor retirement plans for their employees,” Hatch said. “I urge my colleagues to support the resolution before us as it is the best near-term vehicle we have to putting the administration in check with regard to this rule”
Hatch went on to outline the need for further discussion on necessary changes to the fiduciary rule including restoring jurisdiction to agencies responsible for administering the tax code.
“I think that, at the very least, we should revisit whether DOL should have jurisdiction in this area in the first place,” Hatch said. “I have drafted legislation that would restore Treasury’s rulemaking authority in this area in order to ensure that the proper expertise is brought to bear on these issues and that future rules governing financial advice and marketing are crafted with the broader financial regulatory framework in mind.”
The complete speech as prepared for delivery is below:
Mr. President, I rise today in favor of the Congressional Review Act resolution regarding the Department of Labor’s new fiduciary rule. This resolution – which provides Congress with an opportunity to express its disapproval with the administration’s regulations – is important for a number of reasons.
On the substance, DOL’s new rule is extremely problematic.
As a number of my colleagues have already attested, the rule, on its face, would unnecessarily impose a new set of regulations – under the Employment Retirement Income Security Act, or ERISA – on a greatly expanded number of people.
Under current law, brokers and dealers that provide services to retirement plans are already heavily regulated. They are not, however, automatically considered labor law fiduciaries, and, therefore, they are not subject to the increased liability provided under ERISA. Instead, these service providers are subject to regulations issued by the Securities and Exchange Commission to protect investors from fraud and ensure transparency. Under the new DOL rule, virtually any broker that provides investment advice of any kind to individuals regarding their Individual Retirement Accounts, or IRAs, will be considered a pension plan fiduciary, subject to higher standards and greater liability.
As my colleagues have aptly noted, this rule will reduce the availability of investment advice for retirees and make the advice that is available more expensive, which will have a disproportionate negative effect on low- and middle-income retirees. Higher costs and a more burdensome system also mean more expenses for small businesses trying to sponsor retirement plans for their employees.
A 2014 study found that, as a result of these rules, many affected retirees – which, once again, are predominantly middle class or low-income retirees – will see their lifetime retirement savings drop by between 20 and 40 percent, which will translate into a reduction of between $20 billion and $32 billion in system-wide retirement savings every year.
DOL’s own analysis indicates that the rule will have a compliance cost – that’s deadweight loss to the system – of between $2.4 billion and $5.7 billion over the first 10 years, virtually of which will be passed onto to American retirees.
And, I think it should go without saying that, if anyone has an interest in understating the cost of the DOL’s regulations, it’s the DOL itself.
All of these problems – and they are real problems – with the DOL’s fiduciary rule are with the substance of the rule itself. I want to take just a few minutes, however, to talk about the process by which the rule came into existence, because it is no less problematic.
This regulation is an attempt to rewrite ERISA prohibited transaction regulations for IRAs that have been in place since 1975. However, the prohibited transaction rules for IRAs are codified in the Internal Revenue Code, which, generally speaking, would give Treasury regulatory jurisdiction over the matter.
That was the understanding in 1975 when the current regulations were first established. However, a 1978 executive order transferred some of Treasury’s jurisdiction over prohibited transaction rules – rules generally directed at preventing self-dealing and conflicts of interest – to the Department of Labor. In other words, the rule that DOL has rewritten with this new fiduciary regulation pre-dated the department’s grant of jurisdiction.
While this might be a little arcane and in-the-weeds, this distinction is important, given the reported disputes between agencies on this rule. Indeed, according to a report released by the Senate Committee on Homeland Security and Government Affairs, career officials at the SEC and Treasury have expressed concern over DOL’s course of action with regard to this rule. They also offered suggestions for improvements, most of which were disregarded by DOL in favor of a quicker resolution to the rulemaking process.
And, not surprisingly, this report found that political appointees at the White House played an outsized role in the rulemaking process.
Given these procedural concerns – not to mention the substantive concerns with the rule itself – I think that, at the very least, we should revisit whether DOL should have jurisdiction in this area in the first place.
Put simply: IRAs – which are at the heart of these regulations – are creatures of the tax code. They should, therefore, be governed by the agencies responsible for overseeing the implementation of the tax code and not by officials outside of those agencies who, far more often than not, have agendas that are geared more toward business pension plans and not tax-deferred savings accounts set up at the individual level.
Toward that end, I have drafted legislation that would restore Treasury’s rulemaking authority in this area in order to ensure that the proper expertise is brought to bear on these issues and that future rules governing financial advice and marketing are, at the very least, crafted with the broader financial regulatory framework in mind.
As it is, we have a rule that appears to be drafted by those who lack expertise about the retail investment industry in order to achieve a goal that is, to put it kindly, at odds with the purpose of that industry and the interests of the individual savers who rely on it in order to obtain a secure retirement.
I urge my colleagues to support the resolution before us as it is the best near-term vehicle we have to putting the administration in check with regard to this rule. For the long-term, I’m hoping we can have a reasonable discussion about DOL’s role in regulating IRAs to begin with. Ultimately, if that discussion takes place, I think that more and more people will realize that the Labor Department shouldn’t be responsible for crafting what is essentially tax policy.
I plan to vote yes on this resolution and I hope that all of my colleagues will do the same.