President Trump’s pick to lead the Labor Department has a long history with the department’s “fiduciary rule.”
Eugene Scalia was tapped by Trump for Labor Secretary nominee in July, after the resignation of former Secretary Alex Acosta. Acosta resigned primarily because of his past involvement in a 2008 plea deal with Jeffrey Epstein.
Scalia formerly served as the Chief Legal Officer at the Labor Department under George W. Bush. He currently serves as a partner in the law firm Gibson, Dunn and Crutcher. It was in that role that Scalia led the opposition legal effort against the Obama-era Labor Department’s “fiduciary rule.”
The fiduciary rule would have held all advisors and firms to a fiduciary standard for retirement accounts like 401(k) plans and IRAs. That rule would have been a significantly tighter level of oversight than the previous standard of suitability. The fiduciary rule would have severely limited the ability to offer annuities, stock trades, or other commission-driven products and transactions in a retirement account.
Scalia led the legal fight against the fiduciary rule, which was ultimately struck down in 2018 by the U.S. Court of Appeals for the Fifth Circuit. Two members of the three-judge panel agreed with the opposition’s assertion that the Labor Department did not have the authority to enforce the rule.
That wasn’t necessarily the end of the rule, though. Earlier this year, then-Secretary Acosta said that the Labor Department would pursue a revised version of the fiduciary rule. Though few details were offered, Acosta suggested that the rule would align with SEC regulations, which would mean that it wouldn’t be as restrictive as the previous Obama-era proposal.
But what happens to the fiduciary rule now?
According to some experts, Scalia’s appointment would delay or even halt the fiduciary rule process. In a recent article on AdvisorHub, Fred Reish, a retirement law specialist, said that the fiduciary rule is unlikely to be at the top of Scalia’s to-do list.
It’s also possible that Scalia may have to recuse himself from the issue. According to a recent article in the Wall Street Journal, ethics rules generally bar government employees from participating in issues in which they were involved while in the private sector. That may mean that Scalia may have to sit out while others in the department handle the future of the fiduciary rule.
While the original fiduciary rule was struck down in 2018, it will likely stay in the news for the near future. It’s difficult to predict the outcome, but any rule could have a substantial impact on your business and how you manage retirement accounts for your clients.
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