The National Association of Insurance Commissioners reminded federal officials that the states are regulating annuity sales just fine and the Department of Labor should butt out.
In a letter sent last week, the NAIC took the rare step of commenting on federal rulemaking. The DOL’s controversial Definition of an Investment Advice Fiduciary rule essentially extends fiduciary status to every rollover transaction.
The DOL is accepting public comments through Jan. 2 and is expected to publish the final rule as early as the first quarter of 2024.
State insurance regulators say the DOL process was flawed from the start. In a four-page letter signed by all four 2023 NAIC officers, the group made little direct comment on the fiduciary rule itself. Instead, NAIC officers focused on their own best-interest annuity rule, defended the retirement value of annuities, and aired grievances over disrespect from the DOL.
“We are also greatly disappointed in, and fundamentally disagree with, the Administration’s characterization of state consumer protections around annuity sales as ‘inadequate’ and providing ‘misaligned incentives,'” the letter reads.
DOL facts questioned
Iowa Insurance Commissioner Doug Ommen asked colleagues to consider crafting a comment letter during the NAIC fall meeting in early December. Speaking during the Life Insurance and Annuities Committee meeting, Ommen accused DOL regulators of false statements and said the NAIC needed to set the record straight.
“I know we tend to not do that,” Ommen said of commenting on a federal rule proposal, “but this is a particularly different circumstance, since the very justification for their moving forward is their criticism of our efforts here.”
The relationship between state and federal insurance regulators is periodically testy. NAIC members are sensitive to any federal efforts to encroach upon state regulation of insurers, whether it be attempts to collect climate data or new rules to extend the fiduciary standard.
In its letter, NAIC regulators reminded the DOL that much has changed in the five years since a federal appeals court vacated the Obama administration fiduciary rule. In February 2020, the NAIC adopted a best-interest standard requiring the following four obligations: care, disclosure, conflict of interest and documentation.
To date, 41 states have implemented the NAIC best-interest model, while another five states are “actively pursuing adoption,” the NAIC letter noted. The best-interest model was designed to harmonize with the Securities and Exchange Commission’s Regulation Best Interest, the letter added.
“The rationale and justification for DOL’s work should stand on its own as complementary to robust state efforts and should not mischaracterize differences in regulatory philosophy as an absence of regulatory competence or efficacy in this space,” the letter said.
NAIC: Annuities work
NAIC officers reminded the DOL of the American retirement crisis and took the unusual step of endorsing the role annuities can play to supplement Social Security.
“DOL should be encouraging, not potentially limiting, access to well-regulated retirement guidance and products such as annuities that could help to bridge the retirement savings gap,” the letter reads. “There are few retirement security products that protect consumers from their own longevity risk and provide lifetime income, except annuities.”
State regulators reminded the DOL that Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in late 2019. It was one of the largest reforms for retirement plans in years. Congress expanded on these reforms with the SECURE Act 2.0, signed into law at the end of 2022.
The twin laws contain dozens of new provisions, including new rules that affect automatic enrollment in retirement plans, remove barriers to annuities in retirement plans, and student loan debt repayments.
“We view these federal efforts as complementary to our own, and we have met the responsibility to regulate with collaborative action and resolve,” the letter reads. “We fear DOL’s latest attempt at a fiduciary rule could undermine this important work.”
InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at firstname.lastname@example.org. Follow him on Twitter @INNJohnH.
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