On April 4, 2017, less than a week before the scheduled applicability date, the Department of Labor (the “DOL”) announced a 60-day extension of its fiduciary guidance published April 8, 2016: the revised definition of a fiduciary under the Employee Retirement Income Security Act (“ERISA”) (the “Fiduciary Rule”), the new Best Interest Contract Exemption (“BIC Exemption”), and Principal Transactions Exemption and revisions to PTE 84-24, PTE 86-128, and other previously granted exemptions affected by the Fiduciary Rule.
Taking into account this delay, the Fiduciary Rule, the BIC Exemption, and the Principal Transactions Exemption will apply as of June 9, 2017, but will initially require fiduciaries only to meet the Impartial Conduct Standards, but not the documentation, disclosure, and other conditions of the PTEs. The Impartial Conduct Standards include providing advice in the investor’s best interest, charging no more than reasonable compensation, and avoiding misleading statements. Beginning January 1, 2018, all remaining conditions in the fiduciary guidance published April 8, 2016 will apply, unless subsequent revisions are announced. The conditions effective January 1, 2018, include specific disclosure requirements, representations and warranties of fiduciary compliance in communications with investors, and, in the case of the BIC Exemption, entering into written contracts with IRA investors.
Revisions to existing PTEs, including PTE 84-24 and PTE 86-128, were also delayed until June 9, 2017. For PTE 84-24, the Impartial Conduct Standards go into effect June 9, 2017, but other changes will not be applicable until January 1, 2018. However, the revisions to PTE 86-128 and other amended exemptions do not contain a transition period, but rather go into effect as revised as of June 9, 2017.
The DOL described its approach as striking a balance between providing investors with the protections of basic fiduciary norms and standards, while simultaneously minimizing the compliance burdens and the risk of litigation during the period between now and January 1, 2018, during which time the DOL will honor the president’s directive to take a hard look at the Fiduciary Rule. This directive, announced February 3, 2017 in the “Presidential Memorandum on Fiduciary Duty Rule,” requires the DOL to review the Fiduciary Rule to determine whether it may adversely affect Americans’ access to retirement information and financial advice. The DOL determined that the extension is necessary to perform the review and consider possible changes to the Fiduciary Rule and related exemptions. For more information on the Presidential Memorandum, see “Executive Action Regarding Dodd-Frank and the Fiduciary Rule”.
If the DOL determines that significant changes to the Fiduciary Rule and related exemptions are required, it may extend the January 1, 2018 applicability dates, or grant additional interim relief.