Today, the Department of Labor (DOL) published a proposed rule to delay the April 10 applicability date of the final fiduciary rule and related prohibited transaction exemptions (PTEs), including the Best Interest Contract (BIC) exemption, for 60 days (to June 9).
As grounds for the proposed delay, the DOL cites President Trump’s memorandum calling for re-examination of the rule and updated economic and legal analyses of its likely impact. The DOL stated that it might not be able to complete the required re-examination by April 10, and that, without an extension of the applicability date, “stakeholders might face two major changes in the regulatory environment rather than one” (if, for instance, the DOL were to propose rescinding or revising the rule, as a result of the re-examination). The DOL acknowledged this “could unnecessarily disrupt the marketplace, producing frictional costs that are not offset by commensurate benefits.” Accordingly, the stated purpose of the delay proposal is to “reduce any unnecessary disruption that could occur in the marketplace if the applicability date of the final rule and exemptions occurs while the Department examines the final rule and exemptions as directed in the Presidential Memorandum.” In our view, this rationale is helpful in providing a solid rationale for a delay.
The Office of Information and Regulatory Affairs (OIRA) designated the DOL’s proposed extension of the April 10 applicability date as “economically significant” under section 3(f)(1) of Executive Order 12866 because OIRA found it is likely to have an annual effect on the economy of $100 million or more. As a result of the designation, which is unusual for a proposal like this one that would only delay a rule’s effective or applicability date, any final rule must be reviewed by OIRA before it is published in the Federal Register.
With respect to the proposed 60-day delay, the DOL has requested comments on some specific questions, including:
- Whether a different delay period would best serve the interests of investors and the industry
- Whether the DOL should delay only certain aspects of the rule (e.g., notice and disclosure provisions) and permit others (e.g., the best interest standard) to become applicable on April 10
The comment deadline for the proposed delay is March 17. Notably, the proposal stipulates that the 60-day delay will be effective on the date of publication of a final rule in the Federal Register.
The DOL also has invited comments on market responses to the final fiduciary rule and PTEs to date, as well as the topics described in the president’s memorandum:
- Whether the rule, generally, may adversely affect the ability of Americans to gain access to retirement information and financial advice
- Whether the anticipated applicability of the final rule has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice
- Whether the anticipated applicability of the final rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees
- Whether the final rule is likely to increase litigation and prices investors and retirees must pay to gain access to retirement services
The proposal notes that upon completion of the DOL’s re-examination of the rule, including review of public comments on the aforementioned issues, the DOL may decide to:
- Allow the final rule and PTEs to become applicable
- Issue a further extension of the applicability date
- Propose to withdraw the rule
- Propose amendments to the rule and/or the PTEs
In addition to the topics noted above, the DOL specifically requests comments on each of these possible outcomes.
Comments on these broader issues (i.e., beyond the need for a delay) are due April 17.