By Nick Thornton
A new Senate report alleges the Department of Labor
failed to consider recommendations from non-partisan experts at the Securities and Exchange Commission, the Treasury Department and the Office of Management and Budget in crafting its proposed fiduciary rule.
It also alleges the Obama Administration was “predetermined to regulate the industry” and sought economic evidence to “justify its preferred action,” according to a majority staff report of the Committee on Homeland Security and Governmental Affairs.
The report comes after a year-long inquiry into the rulemaking process, initiated by Sen. Ron Johnson, R-Wisconsin, chair of the Committee on Homeland Security and Governmental Affairs.
Johnson was one of a handful of Republican lawmakers in both chambers of Congress who began requesting the DOL release all of its communications with the SEC and the White House as early as February 2015, before the proposal was released.
To date, the DOL has not released the communications it shared with the White House to Johnson, according to the report.
The DOL did release a “limited subset of self-selected communications” between Labor and the SEC, the report says.
A request for comment to the DOL as to whether or not the agency released the extent of its communications with the White House and SEC was not returned before press time.
Ultimately, the SEC provided Johnson and his staff communications between DOL and the White House, even after Labor urged the SEC to reject the Senator’s requests, the report claims.
In at least two appearances before Congressional hearings last year, Labor Secretary Thomas Perez assured lawmakers of DOL’s coordination with the SEC throughout the rulemaking process.
And in a March 2015 interview with CNBC, Perez said DOL worked “very closely” with the SEC, citing staff meetings and his own meetings with SEC Chair Mary Jo White.
The Senate Committee report claims the communications it has been able to access reveal that Labor indeed sought input from SEC in crafting its proposal, but that DOL disagreed with and ultimately ignored SEC’s input.
In November 2014 the SEC received a full version of the proposal and provided edits and comments to DOL in January 2015, about three months before the proposal was released in April 2015.
SEC staff identified at least 26 areas of concern in its review of the proposal.
Sen. Johnson’s report claims DOL “repeatedly provided an incomplete response” to SEC’s comments, “declined to accept the SEC staff’s recommendations, or incorrectly implemented the SEC expert’s recommendations,” according to the report.
Two SEC recommendations related to cost-benefit analysis of alternatives to the rule were ignored, the report claims.
An email exchange in the report between the SEC’s then chief of staff and a senior counsel to Labor Sec. Perez shows Labor did implement “several changes” to the proposal
pertaining to concerns raised by the SEC, but that the SEC continued to have concerns regarding the complexity of the proposal.
Specifically, the SEC suggested Labor clarify the meaning of the term “best interest,” language central to the proposal’s Best Interest Contract Exemption, a core provision of the fiduciary rule.
But Labor declined that recommendation, explaining it intended to wait for comments from stakeholders concerning specific language changes.
The SEC’s recommendation that DOL conduct cost-benefit analyses of alternatives to the rule, which Johnson’s report suggests are required by two executive orders governing regulatory procedures, were rejected by the DOL on the grounds that the qualitative analysis of the proposal was sufficient.
“We think this would be extraordinarily difficult and would appreciably delay the project for very little return,” wrote the DOL in comments to the SEC. The DOL said it would wait for feedback from the OMB before undertaking further cost-benefit analyses.
A request for comment to the DOL as to whether or not the agency’s rulemaking was in compliance with relevant executive orders was not returned before press time.
Sen. Johnson’s report also alleges the DOL ignored a critical recommendation
from OMB’s Office of Information and Regulatory Affairs concerning the protection of all existing compensation practices.
The report goes on to claim that it is “difficult to conclude objectively” that DOL fully considered comments from Treasury regarding DOL’s authority to regulate IRAs.
That claim is made in spite of a letter Treasury’s assistant secretary for legislative affairs sent to Sen. Johnson in December 2015, which said Treasury believes DOL gave its recommendations full consideration.
The OMB is set to release a final rule as early as the second week in March, though an official date has not been set.
Originally posted on BenefitsPro.com