The Department of Labor said Monday it will delay until next year its plan to implement new rules regulating investment advice for 401(k) plans and individual retirement accounts.
The delay comes after heavy lobbying by the financial services industry, which complained the new regulations were too broad.
The department has been working for nearly a year on proposed new regulations which would expand the number of consultants and advisers it could hold legally responsible for the advice given to retirement plan providers and investors.
Currently an array of consultants, advisers and appraisers are able to offer investment-related advice to retirement plan account holders. The proposed rules would impose stricter regulations and serve as a way to hold the financial professionals accountable for their conduct. For instance some of these pros provide advice on investment options and products, while receiving compensation from the investment companies whose products they recommend.
Yet, under current regulations they cannot be held legally responsible if the advice turns out to be faulty.
Many financial professionals included in the proposed regulations are not defined under current law as fiduciaries. That means they are not held legally responsible to offer advice solely for the benefit of the employer offering the plan and workers who participate.
New rules proposed by the Labor Department were met with an outcry from several major companies in the retirement industry. They claimed compliance with the regulations would increase their cost and likely limit choices available to retirement savers. Another concern is that the regulations will chill the desire to give advice out of fear of litigation if an investment goes awry.
The American Benefits Council, for example, said the overly broad regulations would raise costs and significantly shrink the pool of service providers willing to provide investment guidance. The council, which wrote to the Labor Department opposing the regulations, represents companies that provide retirement and health benefits covering about 100 million workers.
"The American Benefits Council is pleased the DOL has chosen to re-propose its regulations and we hope that the new rule will strike the right balance between encouraging investor education and protecting plan participants from conflicts of interest," spokesman Jason Hammersla said.
Phyllis Borzi, the assistant secretary of labor leading the effort, said more than 260 written comments were submitted and 40 witnesses testified during two days of hearings in March. All the input has led the department to back up, consider more input and decide to issue a new proposal next year.
Borzi said many of the retirement industry players and some members of Congress have asked the department to go slower and reconsider the new rules.
"This is such an important consumer protection rule. We think this extra time will enable us to strengthen the protections we've already proposed and do it in a way that is perhaps more straightforward and clear," she said.
She said that the initial proposal that has drawn so much criticism has been the subject of misinformation and misunderstandings about what the rule did. By redrafting the regulation the department can clarify and spell out the regulations more clearly.
A revised proposal will come out early next year.
The Labor Department estimates that about 5,300 retirement service providers would be pulled into the new regulation.