On August 9, 2017, the Department of Labor notified the District Court of Minnesota that it had submitted to the Office of Management and Budget amendments that would delay until July 1, 2019 the applicability of three prohibited transaction exemptions related to the DOL’s “fiduciary rule”: the (i) Best Interest Contract Exemption, (ii) Principal Transaction Exemption and (iii) PTE 84-24. The fiduciary rule became applicable on June 9, 2017, following a sixty-day delay of its initial applicability date of April 10, 2017.
If finalized, these amendments would constitute the second delay in applicability of these controversial exemptions. Pursuant to a final rule dated April 4, 2017, (1) reliance on the Best Interest Contract Exemption and the Principal Transaction Exemption would only require adhering to the Impartial Conduct Standards during the transition period of June 9 through January 1, 2018 and (2) advisors could continue to rely on PTE 84-24 until January 1, 2018, subject to adhering to the Impartial Conduct Standards beginning June 9th. The court filing implies that adherence to the impartial conduct standards is still required prior to July 1, 2019.
The proposed rule is likely in response to a Request for Information filed by the DOL on July 6, 2017. The RFI asked for input regarding the advisability of extending the January 1, 2018 applicability date of the exemptions. It also asked for specific ideas for new exemptions or regulatory changes. It remains to be seen whether the proposed rule includes any additional items beyond the delay in applicability.
In connection with the initial delay finalized in April, the DOL issued Field Assistance Bulletin No. 2017-02 which provides that, during the transition period of June 9, 2017 through January 1, 2018, the DOL would not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary rule and exemptions. The FAB also confirms that the IRS will not impose reporting obligations or excise taxes on any prohibited transactions to which the FAB applies. We expect that this bulletin will be revised to extend the relief provided until July 1, 2019.
Further information on the transition period can be found in FAQs issued by the DOL on May 22nd and August 3rd.