DoL to Hold Off on New Fiduciary Rules for Pension Plans

(September 19, 2011) — The US Department of Labor (DoL) will repropose its controversial rule amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA).

In order to guard those saving for retirement from conflicts of interest, the DoL has aimed to broaden the scope of fiduciary responsibility, and has said it would likely repropose the rule early next year. “Consistent with the president’s January executive order on regulation, the re-proposal is designed to inform judgments, ensure an open exchange of views and protect consumers while avoiding unjustified costs and burdens,” the DoL said in a press release. “When finalized, this important consumer protection initiative will safeguard workers who are saving for retirement as well as the businesses that provide retirement plans to America’s working men and women.”

In a conference call with reporters, DoL’s Employee Benefits Security Administration (EBSA) Assistant Secretary Phyllis C. Borzi said: “We honestly weren’t as clear as we could have been and we’re trying to fix that…We’ve also been working closely with the White House and they’ve approved our decision to move forward in this fashion.” The extra time will permit the department to strengthen and clarify this “important consumer protection,” he said, according to the Wall Street Journal.  

The SEC has been working on rules required by the Dodd-Frank Act that may overlap with the new DoL definition of a fiduciary standard for financial advisers and brokers.

In October 2010, the US DoL’s EBSA proposed an expansion of whom the agency would consider a fiduciary to include consultants that provide advice to retirement plans on proxy voting and the hiring of investment managers, more broadly defining the term as a person who provides investment advice to plans for a fee or other compensation.

The regulation, which had been reviewed by the Office of Management and Budget, had not been updated since the Employee Retirement Income Security Act (ERISA) first went into effect during the Ford administration. The proposed rule stipulated that broker-dealers who make securities recommendations to retirement plans would be subject to fiduciary requirements, thus giving a broader and clearer understanding of when providing such advice is subject to ERISA fiduciary standards.

“The proposal amends a 35-year-old rule that may inappropriately limit the types of investment advice relationships that give rise to fiduciary duties on the part of the investment advisor,” the DoL stated last year.

In other regulatory news, the SEC has moved to limit firms’ bets against clients, addressing issues raised earlier by US Senate investigators in a report earlier this year. The report asserted that Goldman Sachs positioned itself to profit from clients’ losses on complex securities that it packaged and sold. The US financial regulator accused Goldman of failing to disclose that one of its clients — Paulson & Co. — helped create and then bet against subprime mortgage securities that the New York-based firm sold to investors. Paulson & Co., one of the world’s largest hedge funds run by the billionaire John Paulson, paid Goldman about $15 million for structuring the deals in 2007. Paulson has not been charged.

In April, the Senate Permanent Subcommittee on Investigations released a 639-page report on the financial crisis, alleging that Goldman executives misled clients in order to reap profits, and then proceeded to lie to Congress when questioned about its actions. The lengthy report was completed after a two-year probe of the mortgage business that led to financial collapse. It concluded that Goldman mismanaged conflicts of interest, putting its interests above all others.