GAO Report on Fiduciary Rule Could Lead to IRS Changes  

Last month, the Government Accountability Office (GAO) released a report, “Retirement Investments. Agencies Can Better Oversee Conflicts of Interest between Fiduciaries and Investors,” that was requested by Sen. Patty Murray (D-WA) and Rep. Bobby Scott (D-VA), the then Democratic leaders of the HELP and Ed & Labor Committees, respectively, in response to the Fifth Circuit vacating DOL’s 2016 fiduciary rule. Specifically, Murray and Scott asked GAO to review the impact of the fiduciary rule on plans, participants, and IRA investors, including whether there was an impact on access to investment advice. GAO’s report instead focused on federal oversight of conflicts of interest.  

While GAO did study industry changes responding to DOL’s 2016 rule as well as the conflicts of interest that can impact retirement savers, the report ultimately only made two recommendations to the IRS:

• To develop and implement a proactive process to identify prohibited transactions between IRA fiduciaries and IRAs; and

• To assess any associated excise tax.  

The current practice for IRS is that IRS enforces prohibited transactions only when DOL makes a referral. Since DOL does not have the ability to audit IRA fiduciaries, DOL cannot make referrals of prohibited transactions to IRS for excise tax enforcement. The IRS comments, however, note that they “share GAO’s concerns that conflicts of interest involving products recommended to retirement investment consumers present risks and challenges.” IRS agreed with GAO’s recommendations and noted they will examine and explore their processes and opportunities for formal coordination with DOL.    

This report does not mean there will be imminent change at the IRS, but it does signal changes could come in the future.  

IPA continues to monitor developments in this area as we understand it is of utmost importance to our members. We await a decision by DOL whether to appeal the stays by the two federal district courts in Texas, but we may not see movement on that until after Election Day.