Law360 (February 15, 2024) By Kellie Mejdrich

Republican lawmakers blasted the U.S. Department of Labor's proposal to expand which investment advisers are subject to the Employee Retirement Income Security Act's strict conflict-of-interest standards during a House subcommittee hearing Thursday where one member vowed to try to repeal the regulations when finalized.

The House Education and Workforce Committee's health, employment, labor and pensions subcommittee, chaired by Rep. Bob Good, R-Va., heard testimony and questioned witnesses on the DOL's Oct. 31 fiduciary rule proposal for approximately two hours. It's the second House of Representatives panel to consider the proposal, after the House Financial Services Committee held a hearing Jan. 10.

Good asked the DOL to withdraw the Oct. 31 proposal at the hearing's conclusion, which he said was "a classic case of heavy-handed regulatory overreach" by President Joe Biden's administration.

Good and other panel Republicans also dinged the DOL throughout the hearing for issuing a proposal they said was too similar to the agency's previous attempt to expand the ERISA fiduciary definition, which was invalidated by the Fifth Circuit, and for rebuffing an industry request to expand the comment period in November.

A request for withdrawal wasn't the only proposal to kill the rule discussed by Republicans at the hearing Thursday. Rep. Rick W. Allen, R-Ga., who called the proposal "nothing more than a recycled Obama-era disaster," also told members during the hearing that he planned to introduce a joint resolution to repeal the regulation using the Congressional Review Act "as soon as it's finalized and transmitted to Congress."

The DOL's fiduciary proposal has triggered widespread criticism from industry groups including the Insured Retirement Institute, whose chief legal and regulatory affairs officer, Jason Berkowitz, testified before the panel as a witness Thursday. Other witnesses critical of the proposal who testified Thursday included Thomas Roberts, principal at Groom Law Group, and Iowa Insurance Commissioner Doug Ommen.

Ommen told the panel he worked directly on model legislation from the National Association of Insurance Commissioners, also called the NAIC, outlining a best-interest investment advice standard of care for annuity products that has been adopted by the majority of states, and took particular aim at the DOL's lack of outreach to state insurance commissioners.

In response to questioning from Rep. Tim Walberg, R-Mich., Ommen said that besides "very limited contact with some of our full-time staff," the DOL didn't engage in any substantive discussions with state insurance commissioners on the proposed regulation.

"We believe it really would be important to have those discussions to make sure that the regulations that move forward would be complementary of what's happened at the [U.S. Security and Exchange Commission] as well as the states," Ommen said.

Ommen and other witnesses at the hearing who were critical of the DOL's proposal pointed to state insurance regulations as well as the SEC's regulation best interest standard of advice for broker-dealers as evidence there was enough regulation in place without additional agency action.

Democrats on the sharply divided panel pushed back on criticism from witnesses and their Republican counterparts. Several minority members on the subcommittee including Reps. Joe Courtney, D-Conn., and Kathy E. Manning, D-N.C., took particular aim at suggestions that current federal and state regulations adequately protected investors.

"People should take a deep breath here," Courtney said, adding, "Both state and the federal governments have a role here."

A witness for the Democrats, Joseph C. Peiffer, president of the Public Investors Advocate Bar Association, said to the panel in response to a question from Courtney that the current regulation had "more of a rifle shot focus" than the DOL's previous attempt at expanding the fiduciary definition.

"They went back to work, and they sharpened their pencils and really narrowed the rule," Peiffer said.

A DOL spokesperson didn't immediately respond to a request for comment on the hearing.

The NAIC didn't immediately respond to a request for comment.

--Editing by Neil Cohen.