DOL Announces No Further Delay to Implementation of the ‘Fiduciary Rule’

by Shearman & Sterling LLP
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On May 22, 2017, Secretary of Labor Alexander Acosta announced that the DOL has found no “principled legal basis” to further delay the June 9, 2017 applicability date of its “fiduciary rule.”[1]

The fiduciary rule’s initial applicability date was April 10, 2017. On April 4, 2017, however, the DOL issued a final rule delaying applicability by sixty days until June 9, 2017.[2] That final rule also provides that (1) reliance on the Best Interest Contract Exemption and the Principal Transaction Exemption will only require adhering to the Impartial Conduct Standards during the transition period of June 9 through January 1, 2018[3] and (2) advisors can continue to rely on PTE 84-24 until January 1, 2018, subject to adhering to the Impartial Conduct Standards beginning June 9th.[4]

The purpose of the delay is to provide the DOL with more time to consider the issues raised in the President’s Memorandum of February 3, 2017, which mandates further study of the effects of the fiduciary rule on the retail retirement market.[5]

Transition Period

In connection with the Secretary’s announcement, the DOL issued Field Assistance Bulletin No. 2017-02 which provides that, during the transition period of June 9, 2017 through January 1, 2018, the DOL will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary rule and exemptions.[6] The FAB also confirms that the IRS will not impose reporting obligations or excise taxes on any prohibited transactions to which the FAB applies.[7]

During the transition period, the DOL intends to issue a Request for Information asking for specific ideas for new exemptions or regulatory changes. The RFI will also seek comments on whether full implementation should be delayed beyond January 1, 2018 in order to reduce the burdens on financial institutions working to implement changes to their business models and products.

Further information on the transition period can be found in a set of FAQs also issued by the DOL on May 22nd.[8]

[1]  See Acosta, Alexander, “Deregulators Must Follow the Law, So Regulators Will Too,” The Wall Street Journal, May 22, 2017, available at: https://www.wsj.com/articles/deregulators-must-follow-the-law-so-regulators-will-too-1495494029.
[2]  The final rule, can be found at: https://www.gpo.gov/fdsys/pkg/FR-2017-04-07/pdf/2017-06914.pdf. The fiduciary rule can be found at: http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=28806. For a complete overview of the final rule, you may wish to refer to our client publication: “The US Department of Labor’s Final ‘Fiduciary’ Rule Incorporates Concessions to Financial Service Industry but Still Poses Key Challenges,” available at: http://www.shearman.com/~/media/Files/NewsInsights/Publications/2016/04/The-US-Department-of-Labor-Final-Fiduciary-Rule-Incorporates-Concessions-to-Financial-Service-Industry-CGE-041416.pdf. For an overview of the DOL’s delay of the final rule, you may wish to refer to our client publication: “DOL Finalizes 60-Day Delay of the Fiduciary Rule,” available at: http://www.shearman.com/en/newsinsights/publications/2017/04/dol-60day-delay-of-fiduciary-rule.
[3]  Both the BIC Exemption and the Principal Transaction Exemption provided that full compliance would not be required until January 1, 2018. During the transition period, however, fiduciaries had to comply with three conditions. These conditions were: (1) adherence to the Impartial Conduct Standards, (2) the requirement of financial institutions to provide a written notice acknowledging its and its advisors’ fiduciary status and stating that it and its advisors will comply with the Impartial Conduct Standards and disclose material conflicts of interest and (3) the financial institutions must disclose any material conflicts of interest and whether it receives third-party payments or recommends proprietary products. As a result of the final rule released on April 4th, only the first condition will be required during the transition period.
[4]  PTE 84-24 provides an exemption for transactions involving insurance and annuity contracts. In April of 2016, the exemption was amended to require compliance with the Impartial Conduct Standards and to revoke relief for transactions involving fixed indexed annuity contracts and variable annuity contracts as of April 10, 2017. Advisors recommending these products would have to rely on the BIC Exemption.
[5]  The Presidential Memorandum, issued on February 3, 2017, can be found at: https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-memorandum-fiduciary-duty-rule. For a discussion of the memorandum, you may wish to refer to our client publication: “President Trump Mandates Reconsideration of DOL’s ‘Fiduciary’ Rule,” available at: http://www.shearman.com/en/newsinsights/publications/2017/02/reconsideration-of-dol-fiduciary-rule.
[6]  See EBSA Field Assistance Bulletin 2017-02 (May 22,, 2017), available at: https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2017-02.
[7]  See IRS Announcement 2017-04 (March 27, 2017), available at: https://www.irs.gov/pub/irs-drop/a-17-04.pdf which provides that the IRS will not apply § 4975 and related reporting obligations with respect to any transaction or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.
[8]  See Conflict of Interest FAQs (Transition Period), available at: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period.pdf.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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