Last week, the Department of Labor (DOL) issued a request for information (RFI) in the form of 18 questions regarding its fiduciary rule and related prohibited transaction exemptions (PTEs). The RFI was issued approximately one month after Secretary of Labor Alexander Acosta indicated in a Wall Street Journal op-ed article that the rule may not align with President Trump’s deregulatory goals.
Comments submitted to the DOL in response to the RFI will likely form the basis for important changes to the rule, the PTEs and/or the Jan. 1, 2018, applicability date of various PTEs.
As we discussed in a WorkCite article last year, the fiduciary rule revamps the standards for determining when a party is a fiduciary as to an ERISA plan or individual retirement account (IRA) by virtue of providing investment advice for a fee. Because the rule substantially expands existing standards of what constitutes “investment advice,” a broader range of brokers, insurance agents, advisers and financial service providers working with retirement plans subject to ERISA will now be treated as fiduciaries and will therefore become subject to ERISA’s fiduciary responsibility requirements and certain related tax rules. Those tax rules will also apply to such persons who work with IRAs.
In connection with the fiduciary rule, the DOL also issued new and revised prohibited transaction exemptions (PTEs) that permit fiduciaries providing investment advice to continue to receive certain forms of compensation and engage in certain transactions without violating applicable prohibited transaction rules.
In his Wall Street Journal op-ed confirming the rule’s April 9, 2017, applicability date, which we discussed here, Secretary Acosta stated that although courts have upheld the fiduciary rule as consistent with Congress’ delegated authority, the rule as written may not align with President Trump’s deregulatory goals. Consequently, he indicated that the DOL had concluded that it was necessary to seek additional public input on the entire rule.
Request for Information
The RFI lists 18 questions to elicit public input that likely will form the basis for (i) changes or revisions to the rule or PTEs; (ii) entirely new PTEs; and/or (iii) an extension of the Jan. 1, 2018, applicability date of most provisions of the Best Interest Contract Exemption, the Principal Transactions Exemption and PTE 84-24. Specifically, the RFI requests public input on:
- a potential delay of the Jan. 1, 2018, applicability date;
- what the regulated community has done to comply with the rule and whether the rule is appropriately balanced;
- the written contact requirement for the BIC Exemption and Principal Transaction Exemption;
- potential alternative and/or streamlined exemptions, including those involving market innovations such as mutual fund clean shares, T shares* and fee-based annuities;
- the potential overlap if the Securities and Exchange Commission or other regulators were to adopt comparable standards of conduct applicable to the provision of investment advice to retail investors;
- ways to improve the Principal Transactions Exemption;
- ways to simplify the BIC Exemption disclosure requirements;
- whether recommendations to make or increase contributions to a plan or IRA should be expressly excluded from the definition of investment advice;
- issues relating to bank deposits and other similar investments;
- issues relating to PTE 84-24; and
- the rule’s exclusion for communications with independent fiduciaries with financial expertise.
The deadline for submitting comments on extending the Jan. 1, 2018, applicability date for the substantive provisions of certain PTEs is 15 days after the RFI’s publication in the Federal Register. The deadline for submitting comments responding to all other questions in the RFI is 30 days after such date. The RFI is scheduled to be published in the July 6, 2017, Federal Register.
* “T” shares and “clean” shares were introduced by the mutual fund industry in response to the fiduciary rule. T shares have the same sales charges for all asset classes. Clean shares have no front-end load, deferred sales charge or other asset-based fee for sales or distributions.