Rep. Phil Roe, R-Tenn., chairman of the Health, Employment, Labor and Pensions Subcommittee, said Wednesday that the Department of Labor's redraft to amend the definition of fiduciary on retirement accounts is a "regulatory scheme," and called on Labor Secretary Thomas Perez to withdraw it.
During a hearing held by the subcommittee to discuss DOL's plan to revamp the definition of fiduciary under the Employee Retirement Income Security Act, Roe stated that the plan lacks "broad bipartisan support," adding that the department's plan would "cut off a vital source of support many low- and middle-income families and small-business owners rely on, and that is the help of a trusted financial advisor."
But Perez defended the department's redraft during testimony at the hearing, stating that DOL's ERISA proposal is trying to fix a retirement advice system that is "misaligned."
"What we have is a structural systems problem," Perez told lawmakers. "It is perfectly legal to steer someone to a product that maximizes a broker-dealer's bottom line at the expense of the individual investor. We are trying to change that misalignment. The fee structure is what we're trying to change."
Added Perez: "Too often advice is generated by the fees it creates, instead of what's best for the investor."
Roe argued that if DOL's plan goes into effect, "a lot of people will quickly learn that their financial advisor — someone they may have known and trusted for years — will no longer be able to take their call."
The wealthiest Americans "will do just fine" under DOL's plan, Roe continued, likening the plan to another "big government scheme." He argued that "those we want to help will be hurt the most" by the plan.
DOL's latest fiduciary proposal, Roe continued, "will lead to the same harmful consequences as the first [one proposed in 2010] and should suffer the same fate."
Jack Haley, executive vice president at Fidelity Investments, told members of the subcommittee during his testimony that while Fidelity supports a best-interest fiduciary standard, "the details matter," adding that Fidelity fears DOL's proposed plan will "severely restrict" the firm's ability to continue providing assistance to small businesses and workers in 401(k) plans.
The subcommittee's hearing came the same day as a House Appropriations Subcommittee was set to approve a funding bill that would prohibit DOL from using any of its funds to finalize, implement, administer or enforce its fiduciary rulemaking.
Wednesday's hearing came a day after Perez was directed by Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, and Roe to provide to them by June 16 all the correspondence the department has had with the Securities and Exchange Commission regarding DOL's fiduciary redraft.
Both Kline and Roe had told Perez they were not satisfied with the answers he gave to them after their previous requests for such information.
Perez noted at the hearing the 827 pages of correspondence that he had provided to both lawmakers at the "close of business" Monday.
