The Securities Industry and Financial Markets Association said the DOL’s proposed exemptions would be illegal. “Virtually all of the exemption amendments, as well as the new exemptions, are not administrable, and thus fail to meet ERISA's statutory requirement that the [DOL] may not promulgate an exemption unless it is administrable,” the Wall Street trade group said.
Industry groups are also prepared to attack what they see as a flawed cost-benefit analysis by the DOL.
The DOL’s regulatory impact analysis is “fatally flawed,” wrote Investment Company Institute CEO Paul Schott Stevens. The analysis failed to support the need for the rule and did not properly consider the impact on small savers, he said.
The ICI and other industry commenters said the DOL’s conclusion that broker-sold funds underperform direct-sold funds failed to include contrary evidence. They added that studies comparing broker-sold investments to fee-based, fiduciary RIAs––the proper comparison––don’t exist.
Furthermore, implementation cost estimates were either low-balled or ignored, industry groups claim.
“Perhaps the most amazing [DOL cost] estimates relate to implementation of the [proposed best-interests] contractual requirement,” the Financial Services Roundtable said.
The best-interests contract, which would be required with commissioned products sold to IRAs and small plans, would impact about 21.3 million accounts but the DOL assumed the new contractual provisions could be inserted into existing contracts at no additional cost, the Financial Services Roundtable said.
And “we note that [Labor Secretary Thomas] Perez recently acknowledged that the Department did not provide any cost estimates for increased litigation … thereby putting in question whether the requirements of the Administrative Procedure Act have been satisfied,” the trade group added.
In three cases since 2005, the SEC has seen major rules overturned due to inadequate cost-benefit analysis, the American Council of Life Insurers (ACLI) warned.
“The guidance established by statutes, executive orders and seminal recent court cases strongly warrant a more carefully balanced and detailed cost-benefit analysis before the [DOL] proposal moves forward,” the ACLI told the department.
Can the DOL tweak the proposal enough to avoid a court fight?
“That’s hard to say,” Ryan said. For some industry groups, any changes at this point probably won’t be enough, he said.
Mason argues that the department needs to re-propose the rule.
The DOL has promised that the final version will be materially different from the current proposal, he said.
But “when you make very significant changes [to a proposed rule], you have to re-propose” it under the Administrative Procedure Act, Mason said.
DOL spokesperson Michael Trupo declined to comment.