The Department of Labor (“DOL”) has continued to re-examine the “Fiduciary Rule” that we have discussed in our two prior newsletters, which can be found hereand here. As explained there, the Fiduciary Rule became effective June 9, 2017, expanded the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and, as a result, increased the risk that managers of investment funds selling interests to investors investing retirement plan assets, including from their personal IRAs, could be deemed to be acting as a fiduciary with respect to such investment.
On August 9, 2017, the DOL informed the court in Thrivent Financial for Lutherans v. Acosta that it would submit proposed amendments to Prohibited Transaction Exemption (“PTE”) 2016-01 (better known as the “Best Interest Contract Exemption” or “BIC Exemption”), PTE 2016-02 (the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs), and PTE 84-24 concerning advisory transactions involving insurance and annuity contracts and mutual fund shares. The DOL’s proposed amendments (the “Proposed Amendments”) were subsequently published in the Federal Register on August 31, 2017. The Proposed Amendments would (i) extend the current transition period applicable to the BIC Exemption and PTE 2016-02 (during which persons who wish to rely on such PTEs must only comply with “Impartial Conduct Standards”; e.g., provide prudent advice that is in the retirement investor’s best interest, charge no more than reasonable compensation, and avoid making misleading statements) for an additional 18 months until July 1, 2019, and (ii) delay the revocation of the availability of PTE 84-24 for transactions involving fixed indexed annuities for an additional 18 months until July 1, 2019. The comment period for the Proposed Amendments closed September 15, 2017, but final amendments have not yet been issued.
Further, under the current BIC Exemption and PTE 2016-02, a financial institution is ineligible to rely on such exemptions if its contract with a retirement investor includes a waiver or qualification of the retirement investor’s right to bring or participate in a class action or other representative action in court (an “Arbitration Limitation”). On August 30, 2017, DOL announced via Field Assistance Bulletin No. 2017-03 that this restriction would not be enforced by the DOL if the sole failure of the financial institution to comply with such exemption is the inclusion of an Arbitration Limitation in the applicable contract. Although the Field Assistance Bulletin states that DOL’s non-enforcement policy will continue as long as the PTEs continue to prohibit Arbitration Limitations, we caution that in neither instance has DOL amended the PTE itself.
Each of the Proposed Amendments and the Field Assistance Bulletin simplify, but do not remove, the compliance burden on financial advisers and institutions subject to the DOL’s new Fiduciary Rule while also prolonging the uncertainty regarding the steps that such financial advisers and institutions will need to take long term to comply with the Fiduciary Rule’s (and the associated PTEs’) requirements. Notwithstanding these changes (current and proposed), the new Fiduciary Rule remains in effect and imposes real compliance obligations on investment advisers and fund managers. If you would like to market your investment fund or advisory services to retirement plan clients, including clients who investing through their personal IRA, please contact us for additional information about how to do so while complying with the new Fiduciary Rule.