Stopping the government's raid on savings
John Berlau is a senior fellow with the Competitive Enterprise Institute, a Washington, D.C., think tank dedicated to free enterprise and limited government. He spoke to the Trib regarding the federal Department of Labor's proposed “fiduciary rule” that has been criticized for potentially restricting retirement investment options.
Q: What damage do you believe the rule could cause?
A: The rule would severely restrict investment choices in savings plans such as 401(k)s and IRAs, especially for poor and middle-class investors, by forcing investment professionals to adhere to a one-size-fits all definition of ‘best interest' for assets and investment strategies. (If the rule goes into effect), predictions are that many brokers will stop serving households with less than $50,000 in assets.
Q: Doesn't investment regulation typically fall under the Securities and Exchange Commission?
A: The Labor Department is totally bypassing the SEC, which is the primary investment regulator and using illegally, I would argue, limited authority from the Employer Retirement Income Security Act of 1974 over defined-benefit, union-type pensions, to assert authority over all types of 401(k)s and IRAs, and even those investment vehicles that are designed to be self-directed.
Q: Why has Labor proposed this rule?
A: They've said in the rule that they're trying to restrict (investment) choices for Americans because Americans are too stupid. They don't say “too stupid,” exactly, but they say people can't prudently manage retirement assets on their own. I also think one of the motivations is a stealth tax increase. I would argue, and we also saw this with restrictions on 529 (college savings plans), it's a way to get more tax revenue. If you make it so fewer people service middle-income investors, you make it more difficult to service all investors in these vehicles that were designed to lower the tax burden or defer taxes. You're going to get more money in the (federal) coffers but people are going to be less secure in their retirement.
Q: Can Labor implement this rule unilaterally?
A: They claim they have the authority from Congress (to do so) under the Employee Retirement Security Income Act. A lot of people disagree with this. And if they go ahead and implement, I expect there will be lawsuits. What Congress needs to do is pass a bill prohibiting the department from spending any money on implementing or enforcing this rule. A coalition of 33 conservative and free-market groups (recently) sent Congress a letter urging it to freeze funding in any spending bill for the fiduciary bill until the Labor Department withdraws the rule. Congress needs to stick to its guns and exercise its power of the purse to prevent this raid on our purses and wallets and portfolios.
Q: Are you optimistic Congress will do that?
A: I am cautiously optimistic. You have this unusual circumstance that 96 House Democrats have written to the Labor Department expressing concerns with this rule and its affect on middle-income savers. That should embolden the Republicans leading Congress to say to themselves, “If we can't use our power of the purse to stop this rule, than what can we do?” Hopefully, Congress will be emboldened enough to say, “Hold on a minute,” and then use the appropriations process to freeze (the rule) for a year at least.
Eric Heyl is a Trib Total Media columnist. Reach him at 412-320-7857 or [email protected]. His Q&A now appears on Saturday.