Boston mayor Marty Walsh — tapped Thursday by President-Elect Joe Biden to serve as Secretary of Labor — may be able to quickly put the Trump administration’s fiduciary rulemaking efforts on ice.
In December of 2020, the Department of Labor (DOL) under Trump appointee Eugene Scalia finalized an exemption that was intended to align with the Securities and Exchange Commission’s (SEC) Regulation Best Interest standard for brokers. The exemption creates a new class exemption under the Employee Retirement Income Security Act (ERISA) that allows retirement plan advisors to be compensated in new ways. The proposal opens the door for those advisors to be paid through commissions, sales loads, revenue sharing payments and 12b-1 fees.
But the exemption won’t be effective by Biden’s inauguration date of January 20, pointed out former DOL official Phyllis Borzi, which opens the door for the new administration to immediately freeze the guidance if it so desires.
‘Typically this freeze is for a relatively short period of time (e.g., 90 days) but it could be indefinitely. This gives the new administration time to determine whether implementation should proceed with or without changes,’ said Borzi, who served as assistant secretary for employee benefits security under President Obama. ‘This is commonly done by incoming administrations, so you can expect this procedure to be used across the government for all of the so-called “midnight regulations.”’
Walsh, 53, has served as Boston’s mayor since January of 2014. His experience in the labor relations field stems from his time spent as head of the Boston Building and Construction Trades Council, an umbrella group of Boston-area construction unions.
Though Walsh may not have direct experience in the retirement benefits field, regulation of investment advice could be at the top of his agenda.
‘Concerns over investment advice to retail investors, as well as ESG, are likely to be priorities,’ said George Gerstein, co-chair of the fiduciary governance practice at Stradley Ronon Stevens & Young.
The Trump administration’s fiduciary rulemaking efforts at the DOL have included its 2018 decision to not further defend the Obama administration’s fiduciary rule — which defined brokers who dispensed retirement advice as fiduciaries obligated to act in their customers’ best interests — after it was overturned by a federal appeals court for infringing on the SEC’s regulatory authority.
Borzi, an architect of that Obama-era rule, said that after pausing recent Trump administration rulemaking, the Biden administration may look to devise a new slate of retirement advice regulations from scratch.
Biden staffers are ‘prepared to move forward on their regulatory initiatives without trying to use the kind of shortcuts and dodges of the long-established rules that the Trump administration relied on,’ Borzi said.