Today, a coalition letter signed by leaders of 33 leaders of free-market and conservative public policy organizations urges Congress to defund the Department of Labor’s (DOL) “fiduciary rule” takeover of 401(k)s and individual retirement accounts (IRAs). The letter, coordinated by the Competitive Enterprise Institute, states that Congress “must exercise its power of the purse” to stop this “action by the administration that has attracted bipartisan opposition owing to the massive negative effects it would have on Americans’ retirement savings.”
Stretching to the bone its narrow authority over pensions from the 40-year-old Employee Retirement Income Security Act, the DOL has proposed a rule that would cause great harm to middle-class savers. This rule would severely restrict investment choices in savings plans such as 401(k)s and individual retirement accounts (IRAs), especially by poor and middle class investors, by forcing investment professionals to adhere to a one-size-fits-all definition of “best interest” for assets and investing strategies in these savings plans
Stating right off the bat in the rule that Americans “can’t prudently manage retirement assets on their own” and that improved disclosure won’t help, the DOL would massively increase liability and fines for financial professionals who handle 401(k)s and IRAs, unless they choose assets and an investing strategies the DOL deems to be in investors’ “best interest.”
As the coalition letter notes, such a paternalistic approach has attracted opposition virtually all congressional Republicans, as well as over half of House Democrats. Ninety-six House Democrats, led by progressive Rep. Gwen Moore (D-Wisc.), voiced concern in a recent letter to the DOL that the fiduciary rule could limit access to guidance on retirement saving for poor and middle-class Americans
Skepticism was also famously expressed by center-left scholar Bob Litan, who was asked to resign from the Brookings Institution after that think tank received an angry letter from Massachusetts Sen. Elizabeth Warren. He and coauthor Hal Singer, senior fellow at the Progressive Policy Institute, authored a report that questions whether the costs exceed the benefits of the fiduciary rule. Litan and Singer estimate the rule could cost savers $80 billion over the next decade.
Ironically, Warren’s letter and Brooking’s action came after Litan and Singer’s argument already carried the day among many moderates and progressives. As Moore and the other 95 dissenting Democrats recently wrote to the DOL, “It is vital that the [final rule] doesn’t limit consumer choice and access to advice, have a disproportionate impact on lower or middle-income communities, or raise the costs of saving for retirement,” as the current rule does.
In a victory of sorts, Labor Secretary Thomas Perez is rhetorically signaling changes in the final DOL rule. Bloomberg BNA reported that Perez said in a speech at Brookings that “he is ‘confident’ that there will be changes made to clarify and improve upon the proposal while addressing ‘legitimate’ concerns that have been brought to the DOL's attention.” But tellingly, Perez did not say what changes DOL would be making or when the rule would be released.
That’s why, as our letter states, “Congress must exercise its power of the purse granted by the Constitution to halt the Obama administration's executive overreach.” Currently, House and Senate appropriations bills for Fiscal Year 2016 freeze the DOL fiduciary rule by prohibiting the DOL from spending any money from implementing or enforcing the rule. The letter urges congressional leaders to continue to “freeze funding in any spending bill” for the fiduciary rule “until the DOL withdraws such rule.”
As my CEI colleague Iain Murray recently wrote in National Review, “The power of the purse is vitally important in assuring democratic control over expenditures, regardless of the state of delegation from Congress to agencies. It would be ideal if Congress had the power to get rid easily of any law it considers inappropriate, but in the absence of that power (thanks to the veto), defunding is necessary.”