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Plan Sponsor eBrief

President Acts on Fiduciary Rule

On February 3, 2017, President Trump signed a memorandum addressed to the acting Secretary of the U.S. Department of Labor about the so-called fiduciary rule. The President directed the DOL to determine if the rule will harm Americans’ ability to access retirement information and financial advice. What does this turn of events mean for retirement plan sponsors?

Earlier today, the Department of Labor (DOL) released the final rule that further extends the Transition Period and delays the applicability date of several of the prohibited transaction exemptions (PTEs) associated with the DOL’s revamped Fiduciary Rule that became applicable on June 9. Today’s release extends the Transition Period another 18 months, which moves the applicable date for certain provisions discussed below from January 1, 2018 to July 1, 2019. This 51-page filing will be published on the Federal Register November 29, 2017 and can be found here.

According to the DOL, the “primary purpose of granting another delay is to allow them the time necessary to consider public comments under the criteria set forth in the Presidential Memorandum of February 3, 2017, including whether possible changes and alternatives to these exemptions would be appropriate in light of the current comment record and potential input from, and action by, the Securities and Exchange Commission (SEC) and state insurance commissioners.” The DOL notes that it is granting the delay to avoid confusion among consumers and undue expenses to those regulated parties complying with requirements that it may ultimately revise or repeal. 

The specific PTEs whose applicable dates are being delayed include:

  • Best Interest Contract (BIC) Exemption (PTE 2016-01)
  • Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02)
  • Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24)

Given that the new definition of who is a fiduciary and what acts are fiduciary has been applicable since June 9, the parties providing advice needing the relief provided by the delayed PTEs must adhere to the “impartial conduct standards” for advice rendered in the meantime. In short, their advice must be delivered in the best interest of the recipient, and the advice provider must charge reasonable compensation and may not make any misleading statements. 

We have not heard definitive announcements from recordkeepers on their responses to this additional delay. However, our expectation is that most, if not all, of these providers will continue as they had been during this first Transition Period. 

Our view on the future of the rule is that the fiduciary standard is here to stay for the expanded group affected by the definition. However, it seems certain that the above PTEs will evolve. The BIC Exemption continues to receive the most attention; the specific terms and rights afforded through the contract itself receive the most objections and introduce the highest potential for increased litigation and costs. The contract, which exists as the primary enforcement mechanism, could have its terms changed, an alternative exemption could be introduced, or perhaps the SEC and DOL find common ground, significantly reducing the need for a contract-based exemption. It is impossible to know at this time, but we remain committed to monitoring the activity surrounding the new rule and will publish updates as we know more. 

Today’s release has no impact on the way we work with our clients or operate our business.  As always, if you have questions, please let us know.