The Labor Department’s fidu- ciary rule is now in flux after embattled Labor Secretary
Alexander Acosta resigned his post on
July 12 due to pressure over his handling
of the sex trafficking case against hedge
fund manager Jeffrey Epstein.
Patrick Pizzella, Acosta’s deputy, was
appointed to the acting secretary post the
same day. However, a week later, President
Donald Trump announced via twitter
that Eugene Scalia, the lead Gibson Dunn
attorney who argued against Labor’s
now-defunct fiduciary rule, would be his
pick for the next Labor Secretary.
Industry officials are now debating
whether it will be Pizzella or Scalia
who greenlights a fiduciary rule.
Preston Rutledge, head of the Labor
Department’s Employee Benefits
Security Administration, said on June
4 that Labor’s upcoming fiduciary rule-
making will align with the Securities
and Exchange Commission’s Regulation
Best Interest “to mitigate the confusion
that different regulations create.”
In early August, industry attorneys
weighed in on Labor’s fiduciary rule
timeline. While an acting secretary can
sign off on regulations, “considering the
charged political nature of any [DOL]
fiduciary rule, the issuance may be
delayed for that,” said Fred Reish, partner
at Drinker Biddle & Reath in Los Angeles.
The Wall Street Journal reported in
early August that sources familiar with
the matter argue that Scalia would likely
have to recuse himself from crafting a
Labor Department fiduciary rule.
The Journal stated that government
ethics rules generally prevent officials from
participating in issues they were involved
in while in the private sector to guard
against potential conflicts of interest.
Brad Campbell, the former head of
Labor’s EBSA, said in separate comments
to IA, however, that traditionally, participation in litigation wouldn’t preclude
Scalia from working on a regulation. “Is
it possible that has changed, or in this
instance they’ve decided that for whatever reason they want to take a different
path? That’s possible,” said Campbell,
who’s now a partner in Drinker Biddle &
Reath’s Washington office.
Labor, however, “could execute a specific recusal” for Scalia to say that while he’s
secretary of Labor, he can make decisions
on all matters except those relating to the
fiduciary issues, which will be referred to
the deputy secretary, Campbell explained.
The acting secretary “may be the one
charged with fiduciary rulemaking rather than Scalia,” added George Michael
Gerstein, a partner at Stradley Ronon in
Washington and a member of the firm’s
Fiduciary Governance Group. Labor “
continues its coordination with the SEC,” he
said, adding that he anticipates a DOL rule
or other guidance that aligns with Reg BI
being issued by the third or fourth quarter.
By Melanie Waddell
Fiduciary Rule Questions Linger as Trump
Picks Scalia to Head Labor
Industry attorneys weigh in on the likelihood of a DOL fiduciary rule being
issued this year.