Newly finalized guidance by the Department of Labor could be in jeopardy when President-elect Joe Biden is sworn into office on Jan. 20.
Jen Psaki, spokesperson for the Biden transition team and incoming White House press secretary, reportedly stated at a press conference that Biden, upon being sworn in, will move to immediately freeze “midnight” regulatory actions and guidance by the Trump administration that have not yet taken effect. The reference to “midnight” regulations refers to guidance projects that are issued during the lame-duck period of an outgoing presidency, i.e., after the election.
The move to freeze ongoing regulatory projects was not unexpected and is typical for any new presidential administration. As such, any regulatory guidance that has not yet been finalized or taken effect will be delayed—and potentially shelved altogether—until further review by the incoming administration and related department heads.
In the retirement policy sphere, some of the DOL’s guidance projects over the past six months will likely be put on hold for review and possibly be rescinded or rewritten. Those include the following.
PTE for Investment Advice
The newly finalized prohibited transaction exemption for offering investment advice was published in the Federal Register Dec. 18, but is not scheduled to take effect until Feb. 16, 2021.
The proposed exemption was first released June 30 as part of a regulatory package to replace Obama-era fiduciary rule that was vacated in 2018 by the 5th Circuit U.S. Court of Appeals. The package immediately caught the attention of congressional Democrats who called on the DOL to withdraw its investment advice package and start over. Given the recent history and battle to implement a new fiduciary rule, it seems likely that the PTE will be put on hold and the incoming DOL team will reopen a new fiduciary rulemaking project.
Interim Final Rule on Lifetime Income Disclosures
An Interim Final Rule on the SECURE Act’s lifetime income disclosures was published Sept. 18, 2020, in the Federal Register, but is not scheduled to take effect until Sept. 18, 2021. The interim rule is intended to give savers a realistic illustration of how much monthly retirement income they could expect to purchase with their account balance at retirement. At the time, the DOL provided a 60-day comment period, where the American Retirement Association offered support for the rule, but recommended changes in certain key areas.
Rep. Richie Neal (D-CA), who is Chairman of the House Ways & Means Committee and a sponsor of the SECURE Act, took issue with the assumption that those interim final rules put forth regarding projected future earnings. Given Neal’s concern, it’s possible the interim final rule will be revisited and undergo additional changes before taking effect.
Proxy Voting Standard
The DOL’s final rule directing that plan fiduciaries must engage in proxy voting decisions and other exercises of shareholder rights only when such a decision could have a financial impact on the retirement plan was published Dec. 16 in the Federal Register and is set to become effective Jan. 15, 2021. While the DOL pulled back on some of the more controversial aspects of the original proposal, it is still possible the rule will be reopened. Since it will have taken effect before Biden is sworn in, the effective date of the rule could still be delayed, but it would have to go through the official rulemaking process with a notice and comment period before it could be amended. In addition, Sen. Patty Murray (D-WA), ranking Democrat on the Senate Health, Education, Labor and Pensions Committee, took issue with the rule and will likely seek to have it rolled back or amended.
ESG-less Rule on Financial Factors in Investing
While the DOL’s final rule was published Nov. 13 in the Federal Register and is schedule to take effect Jan. 12, 2021, it is possible the rule will be reopened. In general, the rule prevents plan fiduciaries from selecting investments based on non-pecuniary considerations and requires them to base investment decisions on financial factors. Like the proxy voting rule, the financial factors rule will have taken effect before Biden is sworn in, meaning the effective date of the rule could still be delayed, but it would have to go through the official rulemaking process before it could be amended.
Note that this is just a snapshot of the regulatory guidance projects that could be revisited. Similar to other incoming administrations, the Biden memo likely will extend to all departments, so, for example, that could include any newly issued or pending guidance by the Treasury Department or Pension Benefit Guaranty Corporation.
An additional wild card with these rulemaking efforts is the Jan. 5 runoff elections in Georgia. If the two Democratic candidates are elected, the Democrats would take over the Senate and could have a better chance at overturning these rules under the Congressional Review Act—that is, if both the House and Senate approve resolutions to overturn a specific rulemaking effort. Moreover, it’s possible—though not certain—that these regulatory projects could be challenged under the Administrative Procedure Act.
