December was a big month for agenda setting in Washington as legislators and regulators looked ahead to making reform a reality in 2010. On the legislative front, Senators Christopher Dodd and Richard Shelby of the Senate Banking Committee issued a joint statement indicating progress was being reached on a financial regulatory reform package and that they hoped to resolve all issues prior to reconvening this month. In addition, Senator Herb Kohl, Chairman of the Senate Special Committee on Aging, announced plans to introduce legislation requiring target date fund managers to assume fiduciary responsibilities.
Meanwhile, the House Ways & Means Committee was granted an extension until later this month to consider the 401(k) Fair Disclosure and Pension Security Act of 2009 (HR 2989), which would cover both investment advice and 401(k) fee disclosure. Consideration of the bill has been delayed to date as a result of reports that the investment advice provisions may be pulled from the bill. Moreover, Congress appears content for now to defer these issues to the DOL, which posted its semi-annual agenda in early December. Under the agenda, DOL is expected to release final 408(b)(2) disclosure rules in May, and fee and expense disclosure rules for all 401(k)-type plans in September. DOL also will issue newly proposed investment advice rules in the next few months, and plans to issue a proposal in June to expand the definition of "fiduciary" under ERISA.
The SEC also appears ready to pursue aggessive reforms in 2010. In addition to preparing for initiatives adopted by Congress, including hedge fund manager registration, improved oversight of OTC derivatives, and extending the fiduciary standard to brokers providing advice, SEC Chairman Mary Schapiro added to her list of regulatory goals a review of 12b-1 fees and target date funds.
Of course, questions remain on how quickly legislators and regulators will act in 2010. With much of the leg work completed in 2009, it appears that Congress may be poised to finalize financial regulatory reform legislation by early Spring. The House has passed its bill, and the Senate seems closer to achieving the bipartisan support that will be necessary for its bill to pass. The SEC has been viewed by some as slow to respond to needed to reforms, but legislation improving its funding could allow it to act faster. Moreover, the agency showed its ability to act by adopting new investor advisor custody rules and enhancements to proxy disclosures at the end of 2009. DOL also reportedly has been hard at work behind the scenes drafting rules in order to stay on target with its agenda. With all of this positive momentum, reforms are likely to begin taking shape by mid-year and many significant rule changes could be implemented by year end.
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