Facing Stiff Opposition, DOL Withdraws Attempt to Expand Definition of Fiduciary Under ERISA, Will Propose Different Approach

September 23, 2011

Faced with widespread opposition from companies, consumer groups, and even Rep. Barney Frank (D-MA), the Labor Department's Employee Benefits Security Administration announced this week that it would withdraw proposed rules expanding the definition of fiduciary under ERISA and propose a different approach in 2012.  Although the DOL had indicated that its intent in proposing the rule was to cover all providers of investment advice to individuals as fiduciaries, the rule swept much more broadly and would have adversely affected corporate and municipal pension plans, certain individual retirement accounts, routine real estate appraisals, and commercial swap transactions used to hedge risk, among others.  The breadth of the proposal caused Rep. Frank to send a letter earlier this month asking Secretary of Labor Solis to re-propose the rule.  According to news reports, DOL Assistant Secretary for EBSA, Phyllis Borzi, stated “we wanted to get this right, and the fact that people urged us to re-propose is certainly a factor.”  Re-proposing the rule will allow the Department to see how it could coordinate with the SEC, which, under the Dodd-Frank Act, was directed to review how brokers, dealers and investment advisers are regulated and then determine whether additional regulation is needed.  The Association’s Center On Executive Compensation submitted comments on the proposed rule urging the DOL to be cautious of unintended consequences, and called on the Department to review the role of proxy advisory firms in giving advice to institutional investors and pension plans.  Although the DOL has stated that the rule is expected to be re-proposed in early 2012, given the political climate and the fact that 2012 is an election year, the rule could be delayed further.