American Securities Association Wants DOL Employees Recused From Work on Fiduciary Proposal

The American Securities Association wrote a letter on Wednesday to the U.S. House Committee on Financial Services Subcommittee on Capital Markets calling on the subcommittee to identify Department of Labor staff involved with the creation of fiduciary proposal, sometimes called the retirement security proposal. This request drew condemnation from Phyllis Borzi, a former assistant secretary of Labor.

The letter asks that the subcommittee “request that the DOL identify, with specificity, the career employees who have been involved, directly or indirectly, in this policy initiative over the last decade. Evaluate whether these individuals are acting in the best interest of the American people and what outside influences may be informing their actions. Evaluate whether these people should be recused from working on this issue, including finalizing the current rule and any releated [sic] lawsuits.”

The retirement security proposal would extend fiduciary duty under the Employee Retirement Income Security Act to certain one-time transactions, such as rollovers and annuity sales. The DOL has been trying to regulate on this issue for many years, as the letter says, and one final rule, similar to the current proposal, was vacated by the 5th U.S. Circuit Court of Appeals in 2018.

The ASA’s letter argues that the DOL has wasted considerable public resources in pursuing this rulemaking despite previous setbacks and that “American taxpayer dollars continue to be spent on policy initiatives that the courts have repeatedly deemed illegal.”

Borzi, a former assistant secretary of labor from 2009 to 2017, said of this letter that, “to my knowledge, no one has ever before made such a shocking or dangerous recommendation to publicly target career employees (and “out” them by name so that they become targets for abuse) for simply doing their jobs.  Obviously this is yet another not so subtle attempt to shut down a policy process that would help protect investors by mitigating losses they experience from conflicted investment advice just because these financial institutions prefer the status quo.”

Borzi added that, “if this advice to Congress is an indication of the type of mean-spirited thought process that goes into the recommendations that the members of this organization provide to their clients, we need far more than the DOL proposed regulation to protect investors from harmful advice.”

Michael Kreps, a principal in the Groom Law Group who previously served as a senior counsel for the Senate Committee on Health, Education, Labor and Pensions, says he had never seen a letter to Congress with this sort of request in it before. “I don’t recall seeing that kind of argument before, but I also can’t think of a rulemaking in the retirement space that is so controversial and has so much history.”

The DOL declined to comment, and the ASA had no further comment beyond the letter.