Welcome back to Human Capital! The Labor Department’s fiduciary rule has been thrown into flux with the resignation Friday of embattled Labor Secretary Alexander Acosta.
Patrick Pizzella, Acosta’s deputy, was appointed to the acting secretary post the same day that Acosta resigned; President Donald Trump could nominate him officially for the post, but that’s still up in the air.
While Acosta signaled that pressure over his handling of the sex trafficking case against hedge fund manager Jeffrey Epstein led to his departure, former tax attorney Andy Friedman with The Washington Update sees other factors at play. “The White House was frustrated with Acosta for the slow pace at which Labor was issuing deregulation guidance. His replacement might move somewhat more quickly.”
Pizzella now appears to be the point man on rubber stamping a new fiduciary rulemaking — but will he?
Pizzella, a former member of the Federal Labor Relations Authority under President Barack Obama, has been praised for having “pro-business views,” and is said to be liked by the administration and the regulated community.
Labor’s spring reg agenda pegged a fiduciary rule release in December. Pizzella’s a veteran and has “been involved certainly” with fiduciary-related efforts in the Employee Benefits Security Administration of Acosta’s Labor Department, which bodes well “for a modest delay” of guidance and/or an exemption or a separate fiduciary rule, opines George Michael Gerstein, a partner at Stradley Ronon in Washington and a member of the firm’s Fiduciary Governance Group.
EBSA head Preston Rutledge has said a Labor fiduciary rule would “align” with the SEC’s Regulation Best Interest. If a rule is already in the works, a “modest” delay, in Gerstein’s mind, pushes release to early 2020.
Labor’s fiduciary rule “is a big enough deal that they’re going to be very careful with it,” Gerstein opines, and is sure to be on Office of Management and Budget Director Mick Mulvaney’s radar. The acting secretary “is going to be careful and judicious about what they come out with because he’s going to want to get off with a strong start.”
While Rutledge is doing the day-to-day fiduciary rule steering, the acting secretary “would have to greenlight it,” Gerstein adds.
But a fiduciary rule release by Labor now hinges on “how much authority is Pizzella going to feel that he has,” adds Joshua Lichtenstein, a partner at Ropes & Gray in New York who focuses on ERISA and employee benefits. An acting secretary’s “preference is to defer a rulemaking to the secretary.”
As we move into an election year, confirmation of an appointee to fill the Labor secretary seat will be more challenging, Lichtenstein said.
Part of making Regulation Best Interest and the SEC’s advice-standards package “easier and more harmonious is to also have coordination, like a streamlined exemption under ERISA” coming out of Labor, Lichtenstein said. “It will be a significant benefit to market participants to have [such] guidance.”
— Check out The Good, Bad and Ugly of SEC’s Reg BI and Advice-Standards Package on ThinkAdvisor.