7 Bugs Life and Annuity Commenters See Lurking in DOL Fiduciary Rule Draft

Especially given how rushed the drafting and commenting process has been, insurers could end up spending significant time, money and resources on compliance with the onerous rules that would suddenly change when the department posted a clarification or guidance letter, Kappler says.

3. The proposal could let the Labor Department act like the IRS.

John Deitelbaum, head of the MassMutual insurance and financial services section, says the draft could give the department the ability to determine whether companies would or would not have to pay certain types of federal excise taxes in connection with efforts to comply with the proposed fiduciary responsibility regulations.

Those kinds of determinations are exclusively within the enforcement authority of the IRS, Deitelbaum says.

4. The proposal includes an unrealistic implementation timeline.

The draft regulations would give insurers and other parties just 60 days to comply, but implementing the regulations would really take a minimum of 18 months, Deitelbaum predicts.

5. The proposal would make companies responsible for the actions of huge networks of people and companies.

Deitelbaum points out that, under the draft regulations, an insurer or financial institution could immediately be disqualified from using important tax provisions based either on its own actions of the actions of any affiliate.

“The proposal broadly defines ‘affiliate’ to include ‘any officer, director, partner, employee, or relative of the person’ and ‘any corporation or partnership of which the person is an officer, director, or partner,’” Deitelbaum writes. “This creates an almost boundless network of persons, most of whom will have absolutely no connection to the recommendations provided to retirement investors, whose actions can drive financial services workers and companies out of business.”

6. The proposal could hurt career agents.

Deitelbaum observes that, at this point, the current draft regulations would require insurers and producers to put the value of health insurance benefits, retirement benefits and other standard employee benefits in rollover compensation disclosures.

The Labor Department should either exclude benefits from the disclosure requirements or eliminate the need to quantify the benefits’ value, because quantifying the value would be difficult, the benefits have no direct connection with rollover recommendations and savers have no need to know what the benefits cost, Deitelbaum writes.

Regulators’ estimate that insurers would need to spend just eight hours per year on posting new advisor compensation data disclosures and other newly required disclosures on the web “grossly underestimates the time and cost,” Deitelbaum adds.

7. The proposal could freeze out innocent bystander products and services.

Gary Mettler, an independent agent, suggests that the draft regulations could apply to, and hurt administration of, fixed immediate annuities, which are simple arrangements that help savers turn assets into guaranteed streams of retirement income.

Cox worries that the current draft regulations seem to apply group universal life and group annuity products.

Kappler says the draft regulations could apply to insurance wholesalers and limit the wholesalers’ ability to tell retail agents and advisors how products are supposed to work.

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