The fiduciary duty rule crafted by the Obama administration’s Department of Labor (DOL) will become applicable June 9, as the regulatory agency continues to review it for possible changes or reversal.
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Newly installed U.S. Labor Secretary Alexander Acosta on May 22 announced the decision not to further delay the rule’s applicability date for phased implementation in an op-ed piece in The Wall Street Journal. He wrote in the op-ed that additional delay of the regulation would not be consistent with the law, and said the DOL had “found no principled legal basis to change the June 9 date while we seek public input.”
The rule had been set to take effect April 10, but was halted for 2 months for a public comment period to address some of the issues raised by a February memorandum seeking review of the regulation from President Trump shortly after he took office. Many in the Trump administration publicly oppose increased regulation of retirement investment advisers and the financial services industry in general, although few have provided specific plans for dismantling the DOL fiduciary rule that will go into effect in June.
“The Labor Department will roll back regulations that harm American workers and families. We do so while respecting the principles and institutions that make America strong,” Acosta wrote in the op-ed.
Seeks Role for SEC
In the same op-ed, Acosta said the U.S. Securities and Exchange Commission (SEC) should be “a full participant” in the review of the DOL fiduciary rule now underway because of its “critical” financial markets regulatory expertise. In past years, the DOL and SEC have been seen as being at odds on developing such regulation, with the DOL taking the lead under the Obama administration.
The announcement raised some questions among practitioners about eventual compliance with the rule’s Best Interest Contract Exemption (BICE) and its several prohibited transaction exemptions (PTEs) as of January 1, 2018. The DOL in response published “Conflict of Interest FAQs” for the 2017 transition period until the rule is modified or fully implemented. It also published Field Assistance Bulletin (FAB) 2017-02, which outlines the DOL’s temporary enforcement policy on the fiduciary rule.
Although the provisions of the rule have been public for a more than a year, employer plan sponsors and their retirement plan advisers still may be uncertain about how to properly carry out the new regulation’s changes. The rule alters the definition of who is a fiduciary when advising plan sponsors or participants on 401(k) and defined benefit pension plans, and also may affect the way sponsors oversee their retirement plans. Employers that sponsor retirement plans are already fiduciaries, so their job continues to be ensuring their plan service providers are working in the best interest of their employee plan participants.
The DOL’s interim enforcement of the final rule eliminates the need for transition agreements, disclosures, and some changes that were formally required to be in place by the fiduciary rule’s original applicability date of April 10. It was seen as providing short-term relief to plan sponsors and other retirement plan administrators while the fiduciary rule is being reviewed by the DOL. Required representations of fiduciary compliance and related written disclosures also are now delayed until the start of 2018, a move that limits plan and adviser liability for the time being.
Covered transactions will be regulated by the less rigorous Impartial Conduct Standards as of June 9. Compliance with Impartial Conduct Standards is also sufficient between June 9 to January 1, 2018, for the Class Exemption for Principal Transactions or Prohibited Transaction Exemption 84-24.
These standards require that advice given must be in retirement investors’ best interest, compensation must be reasonable, and prohibit institutions and advisers from giving misleading statements to investors. The agency has said the standards would protect plans and retirement investors effectively during the transition period.
RFI for Ideas on Regulatory Changes
In FAB 2017-02, the agency acknowledges that “after the fiduciary duty rule and PTEs were issued firms have begun to develop new business models and innovative market products to mitigate conflicts of interest.” In recognition of this, the DOL issued a Request for Information (RFI) seeking additional public input on ideas for possible new exemptions or regulatory changes. The RFI will ask whether an additional delay beyond January 1, 2018, is required to reduce the burden on financial services providers and retirement plan investors.
The decision not to further delay the regulation aimed at protecting consumers’ retirement savings ran counter to comments from some in the Trump administration and Republican Party who have favored rolling back the rule.
In response, Acosta, in his Wall Street Journal op-ed, wrote: “Some who call for immediate action on the Obama administration’s regulations are frustrated with the slow process of public notice and comment. But this process is not red tape. It is what ensures that agency heads do not act on whims, but rather only after considering the views of all Americans.”
| Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news. |