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News August 14, 2017 Issue

DOL Proposes Delaying Fiduciary Rule Exemptions to July 2019

It seems compliance with various aspects of the Department of Labor’s Fiduciary Rule keep getting pushed back. In the latest case, the DOL on August 9 issued a notice of administrative action, stating that it plans to delay the compliance date for three Fiduciary Rule exemptions, including the Best Interest Contract Exemption, from January 2018 to July 2019.

Whether the postponement actually becomes final will depend on a number of things, among them public comments on the proposed change and what the Department plans to do in light of those comments.

"At the moment, the transition period ends December 31," said Wagner Law Group partner Stephen Wilkes. "A lot has to happen for it to be extended. There could be DOL and Office of Management and Budget formal reviews of the impact of an extension, etc. So we are not there yet and one shouldn’t rush to conclude that we have an 18-month extension. There are procedural steps that must be undertaken, some of which are time consuming."

On the other hand, "the DOL’s filing of a notice of administrative action providing an 18-month extension in the transition period is a strong indication that the transition period will, in fact, be extended until July 1, 2019," said Drinker Biddle partner Joan Neri.

The proposed change would delay the compliance date – technically the "extension of transition period and delay of applicability dates" – of the following exemptions to the Rule:

  • Best Interest Contract Exemption. This would require those providing fiduciary retirement advice, in many cases, to enter into contracts with clients, stating that fiduciaries will act in the best interest of the client.
  • Class Exemption for Principal Transactions. This exemption would permit an adviser or financial institution to take part in the purchase or sale of a principal traded asset in certain transactions with a plan, participant or beneficiary account, or IRA, and receive a mark-up, mark-down or other similar payment for themselves or an affiliate.
  • Prohibited Transaction Exemption. Under this exemption, a person who serves as a fiduciary for employee benefit plans would be allowed to execute securities transactions under certain circumstances.

History

The DOL proposal follows the Department’s June 29 request for information, in which it sought public input on extending the applicability date of these exemptive provisions, as well as possibly changing the requirements of those provisions in the exemptions.

Given this request for information, Mayer Brown partner Lennine Occhino said that she "did not find the DOL’s August 9 proposed delay to be surprising, given that the comment period for the DOL’s most recent request for information in connection with its re-evaluation of the Rule just recently closed and over 500 comment letters have been submitted to date. The Department clearly needs more time in order to properly consider and address all the issues and get it right this time."

The recent history of the DOL Fiduciary Rule and its related exemptions began on February 3, when President Trump issued a Presidential Memorandum instructing the Department to analyze the likely impact of the Rule on retirees receiving retirement advice (ACA Insight, 2/13/17). On March 2, the DOL delayed both the Rule and the exemptions for 60 days, while also seeking public comment on general questions concerning both (ACA Insight, 3/6/17).

On April 7, the Department adopted a final Fiduciary Rule that extended the applicability date of the Rule and its exemptions to June 9 (ACA Insight, 4/10/17). On May 22, the DOL said it would not seek enforcement against fiduciaries until January 1, 2018, if those fiduciaries worked diligently and in good faith (ACA Insight, 6/5/17).

Now the January 1 compliance date may be pushed back further.