The Department of Labor said Monday it will delay until
next year its plan to implement new rules regulating investment advice
for 401(k) plans and individual retirement accounts.
The delay comes after heavy lobbying by the financial services industry, which complained the new
regulations were too broad.
The
department has been working for nearly a year on proposed new
regulations which would expand the number of consultants and advisers it
could hold legally responsible for the advice given to retirement plan
providers and investors.
Currently an array of consultants,
advisers and appraisers are able to offer investment-related advice to
retirement plan account holders. The proposed rules would impose
stricter regulations and serve as a way to hold the financial
professionals accountable for their conduct. For instance some of these
pros provide advice on investment options and products, while receiving
compensation from the investment companies whose products they
recommend. Yet, under current regulations they cannot be held legally
responsible if the advice turns out to be faulty.
Many financial
professionals included in the proposed regulations are not defined under
current law as fiduciaries. That means they are not held legally
responsible to offer advice solely for the benefit of the employer
offering the plan and workers who participate.
New rules proposed
by the Labor Department were met with an outcry from several major
companies in the retirement industry. They claimed compliance with the
regulations would increase their cost and likely limit choices available
to retirement savers. Another concern is that the regulations will
chill the desire to give advice out of fear of litigation if an
investment goes awry.
The American Benefits Council, for example,
said the overly broad regulations would raise costs and significantly
shrink the pool of service providers willing to provide investment
guidance. The council, which wrote to the Labor Department opposing the
regulations, represents companies that provide retirement and health
benefits covering about 100 million workers.
"The American
Benefits Council is pleased the DOL has chosen to re-propose its
regulations and we hope that the new rule will strike the right balance
between encouraging investor education and protecting plan participants
from conflicts of interest," spokesman Jason Hammersla said.
Phyllis
Borzi, the assistant secretary of labor leading the effort, said more
than 260 written comments were submitted and 40 witnesses testified
during two days of hearings in March. All the input has led the
department to back up, consider more input and decide to issue a new
proposal next year.
Borzi said many of the retirement industry
players and some members of Congress have asked the department to go
slower and reconsider the new rules.
"This is such an important
consumer protection rule. We think this extra time will enable us to
strengthen the protections we’ve already proposed and do it in a way
that is perhaps more straightforward and clear," she said.
She
said that the initial proposal that has drawn so much criticism has been
the subject of misinformation and misunderstandings about what the rule
did. By redrafting the regulation the department can clarify and spell
out the regulations more clearly.
A revised proposal will come out early next year.
The Labor Department estimates that about 5,300 retirement service providers would be pulled into the new
regulation.
Copyright 2011 The Associated Press.