Implications of DOL Fiduciary Rule Decisions and RESA Legislation

Some new developments in Washington and recent court rulings have implications for those saving and investing for retirement. Drew Carrington, head of Institutional Defined Contribution at Franklin Templeton Investments, along with Michael Doshier, head of retirement marketing, examine the status of the Retirement Enhancement and Savings Act (RESA) and what it might mean for both plan sponsors and participants. They also recap the latest court rulings impacting the Department of Labor’s Fiduciary Rule.

Here are some highlights of the views of the speakers presented:

  • The Department of Labor has a few options in regard to the latest court rulings on the Fiduciary Rule—namely, whether or not to appeal. However, the business changes that have happened—where organizations are focused on developing business models and approaches that adhere to the concept of acting in our customers’ best interest—are likely to largely remain in place.
  • Separately, the SEC has announced that it is close to completing a draft on a best-interest fiduciary standard of conduct for broker-dealers that would apply to both retirement and retail investors—a broader remit than what the DOL had proposed.
  • We think RESA is positive legislation. It makes a number of proposed changes to the retirement system that are enhancements. There are many different pieces to RESA; it’s a collection of improvements to the system.
  • There is no real organized opposition to RESA. As there are no major revenue implications for the US government, the chances look good that some version of RESA may make it out of Washington with bi-partisan support.
  • Thinking about retirement-plan coverage and the private-sector workforce, small employers often don’t offer plans as frequently as large employers. RESA would make it easier for small employers to pool together to better mirror the economics of large plans.

A full transcript of the podcast follows.

Host/Richard Banks: Hello and welcome to Talking Markets with Franklin Templeton Investments: exclusive and unique insights from Franklin Templeton. I’m your host, Richard Banks.

Ahead on this episode: new developments with legislation in Washington that could have major effects on retirement plans. Speaking with Drew Carrington is Michael Doshier. Michael, take it away.

Michael: I’d be remiss to not start with the latest court activity regarding the Department of Labor’s (DOL’s) Fiduciary Rule, or otherwise known as the Conflict of Interest Rule. Can you walk us through the two recent rulings as well as any important differences in the cases? Recently, the Tenth Circuit [Court] upheld the Fiduciary Rule in a pretty narrow ruling regarding differences between fixed index annuities and fixed annuities. Basically, the Tenth Circuit said the DOL was well within their purview in distinguishing between those two types of products. A couple of days later, the Fifth Circuit came out in a much more broad ruling and said, in fact, the DOL exceeded their authority; you couldn’t divide the rule up into parts, where maybe some parts were okay and some parts weren’t. And so they said the entire rule had to be vacated, and in response to that, the DOL has said they’re not going to enforce the rule while they’re figuring out what they might do next.

Michael: So what do you think happens next? What are the options the DOL has in front of it?

Drew: So the DOL has a couple of specific options. They could appeal to the entire Fifth Circuit. That’s called an En Banc Appeal. They can appeal it all the way to the Supreme Court. They could elect not to appeal it all together. If they elect not to appeal it by April 30, then the rule is vacated. So we may know something sooner, but if they elect to appeal then the process continues on. We continue to not have a final answer on that rule.

Michael: So they’ve got an appeals track, they’ve got a track to ultimately decide to abandon based on the ruling by the Fifth Circuit—the Fifth Circuit decision stands, so to speak. What do we think this all means for the providers who have already put so much effort, time and money into adjusting the way they do business to be in compliance with the rule?