The department extends non-enforcement policy until July 1, 2019 and plans to propose a new streamlined class exemption under the Fiduciary rule.
- The DOL finalized its delay of certain portions of the Fiduciary rule until July 1, 2019, and announced that it anticipates proposing a new streamlined class exemption in the near future.
- The DOL extended its non-enforcement policy applicable to fiduciaries that satisfy the BICE or the Principal Transactions Exemption but still require IRA owners to waive their rights to initiate or participate in a class action.
- Plan sponsors and named fiduciaries should review and evaluate their service agreements with their plans’ financial institutions, recordkeepers and other service providers who provide investment advice, to determine whether and how the DOL’s newest delay will impact services under these agreements or require amendments.
On November 29, 2017, the U.S. Department of Labor (DOL) officially extended the transition period for certain portions of the “Fiduciary” rule under the Employee Retirement Income Security Act of 1974, as amended, by 18 months, until July 1, 2019 (18-Month Delay). The delay was initially proposed in a notice of proposed amendments issued by the DOL in August 2017.
The 18-Month Delay postpones the applicability date of the “Best Interest Contract Exemption” (BICE), and the “Principal Transactions Exemption” (collectively, the Exemptions), until July 1, 2019. The DOL explained that the primary purpose for the delay is to give the DOL time to consider possible changes and alternatives to the Exemptions. The DOL indicated it is concerned that, without an additional delay, financial institutions and advisors may incur undue expense to comply with requirements under the Fiduciary rule, which may ultimately be revised or repealed. The DOL also announced that it would propose a new streamlined class exemption in the near future. This announcement may reflect the DOL’s desire to more fully revise or repeal the Fiduciary rule.
The Fiduciary rule was initially scheduled to become effective on April 10, 2017; however, in April 2017, the DOL published a final rule delaying the applicability date of certain portions of the Fiduciary rule, including the Exemptions, until June 9, 2017. Subsequently the DOL adopted an initial transition period from June 9, 2017 through December 31, 2017, during which fiduciaries relying on the Exemptions for covered transactions were required to adhere to the ‘‘best interest’’ standard and the other “Impartial Conduct Standards.” The 18-Month Delay extends the transition period to July 1, 2019. Accordingly, during the 18-Month Delay, the rules and standards in effect during the initial transition period remain unchanged.
During the 18-Month Delay, the DOL intends to examine the Fiduciary rule, including the Exemptions, as directed by President Donald Trump in his Presidential Memorandum issued on February 3, 2017, and coordinate with the Securities and Exchange Commission (SEC) on the SEC’s examination of the standard of conduct applicable to investment advisors and broker-dealers.
In addition to issuing the final rules delaying the applicability date of the Exemptions, on August 30, 2017, the DOL extended the non-enforcement policy announced in Field Assistance Bulletin No. 2017-03. Through July 1, 2019, the DOL will not enforce the Fiduciary rule with respect to fiduciaries that satisfy the BICE or the Principal Transactions Exemption but fail to comply with the arbitration limitations in the Exemptions by requiring Individual Retirement Account (IRA) owners to waive their rights to bring or participate in a class action. This non-enforcement policy does not limit an IRA owner’s right to enforce contractual provisions under state law.
Plan sponsors and named fiduciaries are provided little certainty by the DOL’s newest delay of the application of portions of the Fiduciary rule and the Exemptions and its adoption of the non-enforcement policy. While we wait for additional guidance from the DOL or direction from the courts, plan sponsors and named fiduciaries should review and evaluate their service agreements with their plans’ financial institutions, recordkeepers and other service providers who give investment advice, to determine whether the DOL’s proposed delay will impact services under these agreements or require amendments.
We will continue to monitor the implementation of the Fiduciary rule and related exemptions and provide an update as it becomes available. For further information, including information about conflicts of interest and BICE, please see our prior Client Alerts dated April 28, 2017, May 8, 2015, June 9, 2017, and August 21, 2017, and the Summer 2016 issue of Perspectives or contact the authors of this Alert.