Oversight of the fiduciary standard dealing with the sale of retirement products would be shifted to the Treasury Department under a provision of a law, the Secure Annuities for Employee (SAFE) Retirement Act of 2013, being introduced today in the Senate.
The primary purpose of the bill being introduced by Sen. Orrin Hatch (R-Utah) would create a new public retirement plan for state and local government that would allow insurance companies to provide pension benefits through fixed annuity contracts. It was introduced in advance of a hearing next week on "Pooled Retirement Plans: Closing the Retirement Plan Coverage Gap for Small Businesses" by the U.S. Senate Committe on Health, Education, Labor and Pensions, headed by Sen. Tom Harkin, D-Iowa.
Harkin, chair of the Senate Help Committee, has been working toward the introduction of a bipartisan USA Retirement Funds bill this summer. As for the plan introduced today by Hatch, Harkin's office stated that it "appreciates the efforts of Sen. Hatch and other members of the Senate to increase the public dialogue around our pension systems, and he plans to look closely at the proposal."
However, while the proposed legislation is prompting strong support from insurance carriers and agents, consumer advocates are voicing deep concerns. The American Council of Life Insurers and MetLife urged prompt action because the bill would create something insurers have been advocating for more than 10 years: use of annuities to deliver lifetime retirement income to employees through tax-advantaged vehicles.
And the National Association of Insurance and Financial Advisors (NAIFA) were also supportive since it deals with an issue of deep concern to agents: the potential that the Department of Labor (DOL) would come out with a rule imposing a strong fiduciary standard on the sale of investment accounts that its members could not live with.
But Title III of the bill would shift oversight of rules on government sales of investment products under ERISA from the DOL to the Treasury Department. It would also require Treasury to consult with the Securities and Exchange Commission (SEC), which is also considering revisions in its fiduciary standard, in writing its rules.
In a statement on the Senate floor Hatch said his bill "takes action to stop the Department of Labor from unilaterally over-regulating 401(k) plans and IRAs." He said the bill restores jurisdiction over the fiduciary rules in the Tax Code to the Treasury Department
In addition, the Treasury would be required to consult with the SEC in prescribing rules relating to the professional standard of care owed by brokers and investment advisors to IRA investors.
"This legislation is consistent with the bipartisan and bicameral effort to convince the Labor Secretary to preserve access to professional investment advice for middle class investors," Hatch said.
Rob Smith, president of NAIFA, reacted to the bill by saying that, "NAIFA has long urged federal regulators, including both the SEC and DOL, to carefully consider the potential impact on middle-market investors of any fiduciary requirements they may impose on financial advisors," adding that, "Main Street Americans cannot rely solely on the government or employers to provide for their retirement years or protect their families' financial security. More than ever, they need advisors, like NAIFA members, to help them plan and implement long-term investment and savings strategies."
NAIFA is encouraged that the SEC requested information to help conduct a comprehensive cost-benefit analysis to determine whether a fiduciary duty rule is needed and what it might look like.
"We submitted comments to the SEC earlier this month, and urged the Commission to opt against taking any action that would attempt to cure a problem that has not been demonstrated to exist and which could have the unintended effect of reducing the access of middle and lower income market investors to needed financial products, services and advice," Smith said.
