Government Affairs Update

July 12, 2021


DOL’s EBSA Acting Assistant Secretary Outlines 2021 Regulatory Priorities and Timelines to IRI Members

On June 29, Ali Khawar, the DOL’s Acting Assistant Secretary of the Employee Benefits Security Administration (EBSA) spoke with IRI’s Advocacy Steering Committee to outline EBSA’s 2021 regulatory priorities and timelines.

Mr. Khawar focused his discussion with the Committee on four primary topics: the ESG rule, the Lifetime Income Illustrations rule, the rules for providers of fiduciary investment advice, and cybersecurity. A comprehensive summary of his remarks can be found here. The following were our key takeaways:

  • ESG Rule. The DOL expects to issue proposals to amend the so-called ESG rule, formally known as the Financial Factors in Selecting Plan Investments in September 2021 and is interested in hearing more from the regulated community about the issues to focus on and changes to include in the forthcoming proposals. The DOL’s proposal will focus primarily on the treatment of ESG investments rather than the process of investment selection, more generally.
  • Lifetime Income Illustrations Rule. The DOL will issue a final rule by the statutory deadline of September 2021. (The agency’s spring regulatory agenda mistakenly listed this date as July 2021.) EBSA staff is reviewing the comments received last year and is considering a number of questions, including when the first illustrations would have to be delivered and whether to provide transitional relief to give industry time to prepare for implementation.
  • Fiduciary Rule. The DOL is interested in meeting with operations and compliance company experts to better understand the challenges facing industry in preparing for implementation of PTE 2020-02. They will consider delaying the scheduled expiration of the DOL’s current non-enforcement policy beyond December 20, 2021, if industry can provide specific, real-world examples and explanations of compliance and implementation struggles. Looking ahead, Mr. Khawar signaled that the five-part test will likely be modified to make it harder to evade and that a variety of PTEs may be revised to ensure a level playing field. He confirmed that there will be no “Best Interest Contract” in the new proposal, and he invited input on how to accommodate the independent producer business model while still effectively protecting consumers.
  • Cybersecurity. The Biden Administration and the DOL are very concerned about the potential for the retirement system to be targeted by future cyber-attacks, and therefore views recent enforcement attention and audits of financial institutions as a matter of national security. Mr. Khawar noted that the DOL’s recent cybersecurity guidance was intended to identify best practices that firms likely already have or should have in place to protect their own interests and those of their clients. Additional guidance may be issued in the future.

IRI will continue to monitor these issues, and to promptly report on any developments to the appropriate IRI committees.

Any questions should be referred to Emily Micale or Jason Berkowitz.

IRI and ACLI Submit Joint Letter to FINRA to its Request for Comments on Diversity and Inclusion in the Broker-Dealer Industry

On June 28, IRI and the American Council of Life Insurers (ACLI) submitted a joint comment letter to FINRA that we, “support the goal of identifying and removing barriers to diversity in the broker-dealer community.” IRI and ACLI’s joint comments was in response to FINRA’s solicitation for input on “Supporting Diversity & Inclusion in the Broker-Dealer Industry.” In addition to submission of the joint comments, IRI issued a press release, which was referenced in certain trade press and legal alerts.

Both IRI and ACLI outlined our respective diversity, equity, and inclusion efforts, expressing to FINRA that we “are particularly interested in potential recommendations pertaining to barriers that exist for individuals interested in becoming licensed advisers.” IRI and ACLI further noted that “even seemingly small changes will result in expanded opportunities and greater diversity within the broker-dealer community.”

An issue underscored by IRI and ACLI is the need for consistent approaches among regulators, particularly the National Association of Insurance Commissioners (NAIC), to address diversity issues. Both organizations appealed for continuing engagement between our organizations, the members we represent and FINRA to continue conversations “…with our regulators as we strive together to empower all Americans, and particularly those in underserved communities, through access to financial education and financial security products,”.

 Any questions should be referred to Emily Micale.


House Financial Services Examines Industry Commitments to Justice

On June 29, the House Financial Services Subcommittee on Diversity and Inclusion held a hearing entitled “The Legacy of George Floyd: An Examination of Financial Services Industry Commitments to Economic and Racial Justice.” The hearing was structured, according to the Subcommittee’s memorandum, to “examine the extent to which banks, publicly traded companies, and others in the financial services industry have made good on their promises to Black communities and businesses, as well as steps those institutions have taken towards achieving sustainable racial equity within their organizations.” Subcommittee Chairwoman Joyce Beatty (D-OH) explained in her opening statement that the “leading financial institutions pledged to serve as allies and apply their power, influence, and resources to support the fight for social justice, and to invest in economic opportunities for Black communities that have been redlined and shut out. Today, I urge my colleagues to join me in calling upon corporations to live up to their commitments and implement sustainable practices that will permanently address the economic inequities that divide our nation.”

Subcommittee Ranking Member, Representative Ann Wagner (R-MO), used her opening statement to highlight some “noteworthy commitments” made by financial services institutions to “increase banking services and better assist America’s underserved communities.” The Ranking Member said that “America’s banks and other organizations in the financial services industry promised to devote resources to advancing racial equity. Banks pledged billions of dollars to programs designed to close the wealth gap, drive homeownership, and bolster community development financial institutions, or CDFIs, and minority depository institutions, MDIs.”

A discussion draft of legislation which would require issuers to conduct a “racial equity audit” every two years to assess “the issuer’s policies and practices on civil rights, equity, diversity, and inclusion; how such policies” affect business, and “whether the issuer had direct or indirect ties to or profited from the institution of slavery” and report the findings of those audits to the Securities and Exchange Commission (SEC). The bill would also establish an Office of Reparations Programs at the Department of the Treasury and appropriates $3,000,000,000 to provide grants for “down payment assistance, home-ownership, startup capital, and savings programs for Black communities.”

IRI will continue to monitor Congress for efforts related to diversity, equity, and inclusion.

Any questions should be referred to John Jennings.

House Appropriations Committee Continues to Advance Funding Legislation

Today, the House Committee on Appropriations conducted a markup and approved the Fiscal Year 2022 Labor, Health and Human Services, Education, and Related Agencies legislation. The bill provides funding for the Department of Labor, including allocating $218,475,000 to the EBSA – a nearly $38 million increase from FY2021 funding. IRI will continue to monitor for adjustments to the Department of Labor’s funding.

The Appropriations Committee agreed to the legislation funding the Securities and Exchange Commission (SEC) in June. Of note to IRI members, the report accompanying that bill contains language calling on the SEC to create a tailored form for registered index-linked annuities (RILAs). The report language is the same that was included in the SEC’s FY2021 Appropriations legislation and states “The Committee is concerned that the current registration process for registered index linked annuities (RILAs) is cumbersome and requires significant information not needed for other registered insurance products. The Committee encourages the SEC to create a tailored filing form for RILAs.” Committee reports accompany legislation and contain information about the measure, votes, and policies. Often, the report includes language expressing the desire of committee members for agencies to act on specific policies. While it does not have the force of law, report language signals the committee’s interest and concern and serves to identify issues for congressional oversight of an agency’s actions.

IRI is continuing to monitor the appropriations process for any impact on our 2021 Retirement Security Blueprint proposals.

Any questions should be referred to John Jennings.


NAIC Starts New E-Commerce Working Group

The NAIC’s new E-Commerce Working Group held its first meeting on June 30. As its chair, Maryland Insurance Commissioner Kathleen Birrane led a discussion on the Working Group’s charges and its workplan and efforts going forward. The Working Group will first survey state regulators to understand the existing legal landscape, including a review of accommodations that were put in place during the COVID-19 pandemic. This information will facilitate discussions with interested parties about new modifications and whether any temporary accommodations should be made permanent.

Commissioner Birrane and Rhode Island Superintendent Beth Dwyer, who was an active participant on the call, emphasized the importance of receiving industry input to understand what the existing concerns or impediments are from an operational standpoint. They would like to work towards consistency across the states and address requirements that do not serve a regulatory or consumer protection purpose.

The Working Group also discussed potential deliverables (i.e., a model bulletin, a white paper), and agreed to convene at the NAIC 2021 Summer meeting in mid-August. During the call, IRI expressed support for the initiative and offered to leverage the expertise and insights of IRI’s very robust operations and technology community as a resource to assist them in carrying out their charge. IRI is launching its own State E-Commerce Issues Working Group to begin discussions and solicit member feedback/insights on these important issues and to guide our engagement with the NAIC Working Group.

Any questions should be referred to Sarah Wood.

SEC Chair Gensler’s Remarks on ESG and Diversity and Inclusion Disclosures to SEC’s Asset Management Advisory Committee

Last week, SEC’s Chair Gary Gensler shared remarks to the Asset Management Advisory Committee recommending the SEC enhance fund disclosure and fund names as they relate to environmental, social, and governance (ESG) related investments. Specifically, Mr. Gensler noted “[T]hat 80 percent policy pertains to investment types, as distinguished from investment strategies. I’ve asked staff whether that distinction between investment type and strategy is still relevant today. To me, it may well be a distinction without a meaningful difference. Regardless of the kind of fund, I believe investors benefit from seeing the criteria and data underlying investment decisions”. Therefore, updates to fund disclosures and to naming conventions could be added to or supplement the SEC’s 2021 regulatory agenda. This may be of particular interest to the asset management industry, considering recent and significant growth in the “sustainability area” or ESG-related investing.

Additionally, Mr. Gensler addressed the Asset Management Advisory Committee’s report which concluded the asset management industry has a lot of work to do to increase racial and gender diversity. Per this report, the Committee recommended that transparency is a key first step in improving the diversity and inclusion practices of the asset management industry.

Therefore, Chair Gensler has asked SEC staff to consider ways that we can enhance such transparency. Examples of this recommended enhanced transparency could include “requiring disclosure of aggregated demographic information about an adviser’s employees and owners. Recommendations on enhanced DEI transparency also could include information about an adviser’s diversity and inclusion practices in its selection of other advisers”.

Any questions should be referred to Emily Micale.