Vast Majority of Public Comments Oppose New Federal Regulation That ‘Redefines’ the Term ‘Fiduciary’

Labor Secretary Thomas Perez speaks during a veterans employment in construction symposium at the Department of Labor on February 10, 2014 in Washington, DC. AFP PHOTO/Mandel NGAN (Photo credit should read
Mandel Ngan/AFP/Getty Images

The Department of Labor, headed by Thomas E. Perez, a “liberal hero” to CNN and “a hardcore left-wing activist,” to Judicial Watch, continues to expand the Obama administration’s relentless assault on individual liberties and the rule of law with its latest proposed regulation, Definition of the Term `Fiduciary’; Conflict of Interest Rule–Retirement Investment Advice.

74% of all the public comments on the rule during the 90 day public comment period that began in April adamantly oppose it, according to a recent analysis conducted by the Competitive Enterprise Institute, but despite this widespread opposition, the Department of Labor appears to be steamrolling the rule to final approval.

It’s a second bite at the apple for the Obama administration as it tries to push this new rule, largely unwanted by anyone who is not a bureaucrat in the Obama administration, through.

The first try came back in 2010, as the Small Business Administration’s Office of Advocacy reported:

On October 22, 2010, EBSA [the Employee Benefits Security Administration of the Department of Labor] published a proposed rule that would have amended a 1975 regulation that defines when a person providing investment advice becomes a “fiduciary” under ERISA. The proposed rule would have expanded the scope of that definition to subject investment advisers to fiduciary requirements such as required disclosures and to prohibit advisers from engaging in certain transactions.

In response to the 2010 proposal, EBSA received numerous public comment letters stating that the proposal would have made it impermissible for investment advisers to engage in certain transactions that were common practices under the commission-based model. In 2011, EBSA announced that it planned to withdraw the proposed rule, and that the agency would start over to draft a new proposal to update the definition of fiduciary.

In the 2015 version of the proposed rule, the Department of Labor cites the Employee Retirement Income Security Act of 1974 (ERISA) as the statutory authority for the rule defining “fiduciary,” but fails to explain why the rule it promulgated in 1975 that previously defined “fiduciary” under that law’s authority is now, somehow, inadequate.

It is unclear if anyone besides the bureaucrats at the Department of Labor felt there was any compelling reason to revise a rule that was based on the original statute and was considered lawful at the time of its promulgation.

It’s not just conservatives who oppose this proposed new rule. Even liberal think tanks believe the proposed rule is bad.

As Robert Litan of the Brookings Institution and Hal Singer of the Progressive Policy Institute wrote in the Wall Street Journal recently:

If you’re a Democratic policy maker worried about retirement savings for the little guy, would you deny millions of small savers access to financial advisers in ways that could cost them $80 billion in the next market downturn? Would you ask working families to pay more to keep the adviser they have?

The obvious answer to both is no. But the White House and the Labor Department have teamed up to propose a new “fiduciary rule” on brokers and advisers serving individual retirement account investors, which would produce precisely these unintended consequences.

“Secretary of Labor Thomas Perez insists that small savers would be better off working with ‘robo advisers’—computer-programmed advice delivered by email or text message—than with human brokers who get paid commissions by investment firms, because this renders their human advice ‘conflicted,’ “ Litan and Singer continued.

“The Labor Department has proposed rules to effectively ban this form of compensation,” they added.

“Two main factors explain why,” they argued.

“First, contrary to conventional wisdom, commission-based compensation is usually the least costly way for small savers to get valuable advice. Second, by being indifferent as to whether people get advice from a human or a robot, the White House would doom working families to billions in losses,” Litan and Singer noted.

“In other words, the Labor Department would ask small savers to pay much more to maintain a relationship with their broker for investments they already own (and on which they’ve already amortized the original sales charge). No wonder some Wall Street firms have shrugged at the rule, saying they’ll just have to find a way to get by with higher fees,” according to the two liberal scholars.

But Litan and Singer believe the rule will have very negative consequences for small investors.

“Our conservative assessment in a new report (funded by Capital Group, a leading investment manager) is that the cost of depriving clients of personalized human advice during a future market correction—merely one of the many costs not considered by the Labor Department—could be as much as $80 billion, or twice the benefits the administration claims for the rule over the entire next decade,” they wrote.

These liberal academics conclude by warning the far-left zealots at the Department of Labor to back off.

“There’s still time for facts to prevail, and for sensible ideas—like better transparency and disclosure of commissions—that can help small savers reach their goals. Without such a course correction, a new chapter in the long federal saga of unintended consequences may soon be written, and American savers will pay the price,” they concluded.

The huge opposition to the proposed rule beyond the think tanks on both sides of the aisle is apparent in the volume of public comments. As John Berlau, Senior Fellow at the Competitive Enterprise Institute wrote recently:

CEI’s breakdown of the comments show massive opposition to the rules, particularly among the middle-class savers DOL and its supporters say they are trying to help. Here are the findings of the analysis of more than 900 comments filed to DOL on the rule. The analysis was conducted by CEI Research Associates Chris Kuiper and John McDonald, as well as myself.

74 percent of individual commenters with no listed business interest opposed the rules. 22 percent supported, and 4 percent were neutral.

Perez, a champion of raising the minimum wage to $10.10 per hour, was a controversial pick to head the Department of Labor back in 2013.

He was one of the few cabinet nominees in recent years to be confirmed on a strictly party line vote, though six moderate Republicans ( Lamar Alexander (R-TN) , Bob Corker (R-TN) , Susan Collins (R-ME) , Mark Kirk (R-IL), John McCain (R-AZ), and Lisa Murkowski (R-AK) joined 54 Democrats and Independents to invoke cloture in a 60-40 vote that preceded his confirmation vote.

Senator Mike Lee (R-UT) opposed the nomination on grounds that while Assistant Attorney General at the Department of Justice Perez had undermined the rule of law:

Mr. Perez has abused his position as Assistant Attorney General for the Civil Rights Division at the Department of Justice. Rather than seek out and expose instances of racial injustice, Mr. Perez has turned the office into his own personal tool of political activism.

For example, a report issued by the Department of Justice’s Inspector General found that during Perez’s tenure at the CRD, employees harassed colleagues for their religious and political beliefs.And, despite having little if any evidence of racial discrimination, Mr. Perez has repeatedly opposed the efforts by states to ensure the integrity of their elections. Under his direction, the Civil Rights Division has pursued frivolous lawsuits against voter ID laws, ignored statutes that require states to purge ineligible voters, and slow-walked attempts to protect the voting rights of military members.

While head of the CRD, Mr. Perez’s unit also used spurious and misleading claims to allege racial discrimination and selectively enforced laws to target unfavored groups.

Most troubling, Mr. Perez has willfully disregarded a lawful subpoena from the House Committee on Oversight and Government Reform to produce documents relating the use of his non-official email account for official purposes. According to the Chairman of that Committee, “Mr. Perez has not produced a single document responsive to the Committee’s subpoena” and “remains noncompliant.”

At a minimum, this is a basic violation of the rule of law and impedes a fundamental function of the legislative branch to provide oversight of the administration.

Anyone showing this type of willful disregard for the law and ambivalence toward America’s essential principles of democracy should not be considered for a top post in any administration.

According to the 1946 Administrative Procedure Act, which established the process agencies and departments are required by law to follow when engaged in rule making, two things are key to that process: (1) statutory authority and (2) public participation.

Under the Obama administration both requirements are given short shrift.

In the case of the Department of Labor’s “fiduciary rule,” the statutory authority was exhausted back in 1975 when the department lawfully promulgated the first such rule.

This new proposed rule is not rule making by the Department of Labor under the authority of the Administrative Procedure Act. It is, instead, legislating new law by usurping Congress’s exclusive Constitutional authority to legislate.

In terms of incorporating the public comments opposing the deal in the final rulemaking, it appears obvious that the Department of Labor has no intention of listening to the public.

Just as the EPA ignored public opposition to its recent coal power plant carbon dioxide emissions and water regulations, the Department of Labor is making it very clear that the public has no impact on the Obama administration’s corruption of regulatory law in America.

Under Obama, it’s no longer rule making.

It is now rule giving.

Public comments are now merely a ritualistic, insignificant formalized step in the process that leads to the pre-arranged approval of a bad rule no one besides Obama administration bureaucrats and their far-left allies want.


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