David Tittsworth, Ropes & Gray investment management counsel, analyzes the possible fate of the Department of Labor’s Fiduciary Rule.

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Transcript:

In April 2016, the Department of Labor issued a final rule that amends the definition of fiduciary that’s been in place for decades under ERISA. To say the least, this rule has been very controversial. President Obama and then-Secretary of Labor, Tom Perez, were strong supporters of the rule. But President Trump and his new Secretary of Labor, Alex Acosta, have criticized it. This change in administrations has raised questions about the ultimate fate of the rule.

On the legislative front, Congress clearly has authority to pass legislation to change the DOL rule. Republicans have majorities in both the House and the Senate, and many of those Republicans are opposed to the rule. But the primary hurdle to any legislation is that Senate rules generally require 60 votes to end debate and that’s a very unlikely outcome, considering that eight Democrats would have to join all 52 Republicans in the Senate.

Now with respect to judicial challenges, there are six lawsuits that have been filed in four different jurisdictions challenging aspects of the rule. Now thus far, no court has granted injunctive relief that would effectively stop the rule, so it’s difficult to predict the outcome of any of these cases. Each one is very fact-specific, but it is possible that one or more could have a profound impact on the final outcome, so stay tuned.

On February 3, President Trump issued an order directing the Secretary of Labor to review the rule, recommend appropriate changes and file a report. I think it’s almost certain that the rule is going to be revised significantly, but getting there will take place in a stair-step fashion. The first step is already in progress – that’s the delay of the rule’s applicability date. The next step will be completion of the DOL’s review of the rule required by the president and its report. And then the final step will be the DOL proposing changes to the rule. A complicating factor to consider is that the SEC also is looking at a potential rulemaking. SEC Chairman Clayton and DOL Secretary Acosta have both pledged to work together to harmonize rules within their agencies’ respective jurisdiction, but that goal has proven elusive in the past.

In the end, it seems fairly certain that significant changes to the rule are going to be proposed for comment. To say the least, firms that are affected by this important rule need to pay close attention during the coming weeks and months to understand what changes will be proposed and how those changes may affect their compliance obligations and business interests.