On April 6, 2016, the Department of Labor under the Obama administration issued a new final rule and exemptions addressing when a person providing investment advice with respect to an employee benefit plan or individual retirement account is considered to be a “fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code. The fiduciary rule aimed to reduce the allegedly conflicted investment advice given to retirement savers, and was scheduled to become applicable on April 10, 2017. See our client alert here outlining the significance of the rule and the implications of the expanded definition of “fiduciary” for investment advisors and other related service providers.
However, on February 3, 2017, President Trump ordered the Department of Labor to conduct an economic and legal reevaluation of the conflict of interest rule and associated exemptions. The President’s Executive Memorandum focused on the impact of the rule on access to retirement products, advice, and information and required the Department to rescind the rule if it finds that it is inconsistent with Trump Administration’s policies (see our blog here).
On April 4, 2017, following a notice and comment period, the Department of Labor postponed the applicability fiduciary rule for sixty days, until June 9, 2017, and delayed to June 9, 2017 certain transitional requirements under the Best Interest Contract Exemption (the “BIC”) and other new or revised prohibited transaction exemptions; but it did not delay the compliance date for the full BIC, which remains January 1, 2018. In addition to delaying the compliance date under the BIC, the Department repealed all of the requirements for relying on the BIC between June 9, 2017 and January 1, 2018, other than the requirements to (i) adhere to a best interest standard, (ii) receive no more than reasonable compensation, and (iii) avoid making materially misleading statements. The stated purpose of the extension is to allow more time to: (i) complete the examination required by President Trump’s February 3, 2017 memorandum; and (ii) consider possible changes with respect to the conflict of interest rule and related exemptions based on new evidence or analysis developed pursuant to the examination (for details on the extension see our blog here).
Additionally, several lawsuits challenging the rule and related exemptions have been moving forward in the federal courts. To date, the Department of Labor has won favorable rulings upholding the legality of the rule and related exemptions in Washington D.C. (see our blog posts here, here and here), Kansas (see here and here), and the Northern District of Texas (see here and here). Another lawsuit challenging parts of the fiduciary rule remains pending in the District of Minnesota (see here). Of course, the Department of Labor’s victories in Court may be partially mooted by changes to the rule resulting from the Department’s reevaluation of the rule in line with President Trump’s priorities.