Plan Sponsors Should Take Action during the New Fiduciary Rule Transition Relief Period

Bradley Arant Boult Cummings LLP
Contact

Bradley Arant Boult Cummings LLP

On November 29, the Department of Labor (DOL) announced an extension to July 1, 2019, of the previously established deadline for transition relief from many provisions of the new fiduciary rule applicable to investment advisors that was due to expire on January 1, 2018. Sponsors of retirement plans should take advantage of this significantly extended transition period to confirm that advisors to individual plan participants have taken steps to comply with the rule’s requirements and prohibited transaction exemptions that are now due to become fully effective on July 1, 2019.

The fiduciary rule as issued by the Obama DOL essentially requires financial advisors to individual clients regarding retirement investment products to give advice in the client’s best interest. The rule as implemented includes a complex framework for compliance, including a “best interest contract exemption” permitting investment advisors to provide certain services without running afoul of prohibited transaction restrictions.

As part of the current administration’s review and overhaul of Obama-era regulation, the deadline for compliance with much of the new fiduciary rule was previously delayed until January 1, 2018. The DOL also announced special enforcement relief for the period ending January 1, 2018, indicating that it would not “pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.” Now, purportedly to give regulators more time to determine how best to proceed with respect to the implementation of the rule, the same transition period has been extended to July 1, 2019. During the transition period, while advisors must still comply with the “impartial conduct standards” of the fiduciary rule that are intended to protect consumers – i.e., give advice that is in the best interest of the client, charge reasonable compensation, and not mislead investor clients – investment advisors now will not be required until July 1, 2019, to satisfy certain contractual requirements of the fiduciary rule, which obligate advisors, among other things, to enter into contracts with clients that include certain disclosures and preserve the client’s right to an individual right of action against the advisor. Significantly, enforcement relief and relief from certain prohibited transaction restrictions that depend upon the best interest contract exemption will also be further delayed until July 1, 2019.

Although there is no guarantee that the administration will not determine as of July 1, 2019, that the rule, in the words of the Presidential Memorandum of February 2, 2017, “may adversely affect the ability of Americans to gain access to retirement information and financial advice,” plan sponsors should take advantage of this extended period to confirm that financial advisors who have been engaged to advise plan participants on their individual retirement investment decisions will be ready for compliance when the time comes. A review of advisors’ compliance plans would be in order. In particular, plan sponsors should take note that they still have in all cases a duty to monitor service providers and avoid prohibited transactions.

 

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.

© Bradley Arant Boult Cummings LLP | Attorney Advertising

Written by:

Bradley Arant Boult Cummings LLP
Contact
more
less

Bradley Arant Boult Cummings LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide