On November 29, 2017, the Department of Labor (DOL) announced an 18-month extension, from January 1, 2018 to July 1, 2019, of the special transition period for the new fiduciary rule’s Best Interest Contract (BIC) Exemption and the Principal Transactions Exemption, as well as the applicability of certain amendments to Prohibited Transaction Exemption (PTE) 84-24.
The DOL’s new fiduciary rule significantly expands the circumstances under which consultants, advisers and others become fiduciaries for purposes of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the prohibited transaction provisions of the Internal Revenue Code of 1986, as amended (the Code), as a result of providing “investment advice.” In connection with the rule, the DOL issued new and amended PTEs in order to permit fiduciaries to continue to receive certain forms of compensation so long as certain new conditions are satisfied by the applicable fiduciaries. See here for an earlier Sidley Update summarizing the new fiduciary rule and related PTEs.
The fiduciary rule went into effect on June 9, 2017. However, the DOL delayed the need to fully comply with all of the requirements of the fiduciary rule’s new exemptions, the BIC Exemption and the Principal Transactions Exemption, as well as the applicability of amendments to an existing exemption related to certain insurance and annuity transactions (PTE 84-24) until January 1, 2018.
In August 2017, the DOL proposed an 18-month extension of the transition period, such that the period would end as of July 1, 2019. On November 29, 2017, the DOL published a notice in the Federal Register that finalizes such proposal following public comment and provides the DOL with additional time to examine public comments under the criteria set forth in a February 2017 Presidential Memorandum. The DOL’s review will include whether possible changes and alternatives to the exemptions would be appropriate in light of the current comment record and potential input from, and action by, the Securities and Exchange Commission and state insurance commissioners. The DOL indicated that during the extended transition period, it intends to complete its review under the Presidential Memorandum and decide whether to propose further changes.
During this transition period, fiduciaries are required only to satisfy the following “impartial conduct standards” for relief under the BIC Exemption and the Principal Transaction Exemption:
- Provide prudent advice that is in retirement investors’ best interest;
- Charge no more than reasonable compensation; and
- Avoid misleading statements.
The applicability of the amendments to PTE 84-24, which would have revoked the availability of such exemption for certain types of annuity contracts, has also been delayed for the duration of the transition period; however, the “impartial conduct standards” discussed above still apply to fiduciaries seeking relief under PTE 84-24 during the transition period.
In addition, the Notice also announced that the temporary enforcement policy described in Field Assistance Bulletin 2017-02 will continue to apply during the 18-month transition period. Therefore, until July 1, 2019, the DOL will not pursue claims against fiduciaries “working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.”