On April 7, the Department of Labor (DOL) formally adopted its previously proposed 60-day delay of the applicability date of its fiduciary conflict-of-interest rule and related prohibited transaction exemptions (PTEs). The rule and the PTEs are now set to become applicable on June 9, 2017, instead of the originally scheduled date of April 10, 2017. The DOL also formally delayed, until Jan. 1, 2018, the applicability of various requirements necessary to qualify for relief under certain of the PTEs.
The rule significantly broadens the scope of those considered fiduciaries under ERISA on account of providing investment advice for a fee. In connection with the rule, the DOL issued new and amended PTEs, which would permit fiduciaries providing investment advice to continue to receive certain forms of compensation and engage in certain transactions without violating applicable prohibited transaction rules. Our April 15, 2016 WorkCite article discussed the substance of the rule and related PTEs, new and amended.
In February 2017, President Trump issued a memorandum directing the DOL to conduct further examination of the rule to determine whether it might adversely affect Americans’ ability to obtain retirement information and financial advice. In response to that memorandum, the DOL proposed the now-finalized 60-day delay and sought comments on the rule and related PTEs in furtherance of the president’s directive for additional review. The comment period ends April 17, 2017.
The April 7 action by the DOL does the following:
- It delays until June 9, 2017, the applicability date of the rule, the new PTEs — the “best interest contract” exemption (BIC Exemption) and the exemption for principal transactions in certain debt securities (Principal Transactions Exemption) — and the amendments to various existing PTEs.
- It delays until Jan. 1, 2018, the necessity to fully comply with all of the requirements for the BIC Exemption, the Principal Transactions Exemption and PTE 84-24(as amended). From June 9, 2017, through Jan. 1, 2018, a fiduciary need only do the following to qualify for exemptive relief under these PTEs:
- Provide advice in retirement investors’ best interest;
- Charge no more than reasonable compensation (and as to the Principal Transactions Exemption, seek the best execution reasonably available under the circumstances with respect to the transaction); and
- Avoid misleading statements.
- It delays until Jan. 1, 2018, provisions of the PTEs requiring the following: written representations and commitments about fiduciary compliance, execution of a contract, warranties about policies and procedures, and the prohibition on imposing arbitration requirements on class claims.
Future of the Rule
Despite the June 9, 2017, general applicability date, the ultimate fate of the rule remains uncertain. As noted above, the comment period initiated in response to the president’s memorandum does not end until April 17, 2017. In addition, the DOL indicated in its Federal Register filing that it will continue to evaluate the rule, as mandated by the president, until Jan. 1, 2018. That filing states that “[f]ollowing the completion of the examination, some or all of the Rule and PTEs may be revised or rescinded, including the provisions scheduled to become applicable on June 9, 2017.”
For further information, please contact any of the authors of this article — Jessica S. Sackin, Maria P. Rasmussen and Robert B. Wynne — or any other member of the McGuireWoods employee benefits team.