Written by David Schultz | Attorney/Product Manager | FIS
It appears that the Department of Labor’s (DOL’s) Final Fiduciary Regulation may be delayed past its original April 10, 2017, applicability date.
On February 3rd, President Trump signed an Executive Order directing the DOL to review its newly issued fiduciary regulations to determine “whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”
The Executive Order further requires the DOL to publish a notice and a comment rescinding or revising the fiduciary rule. This will be required if the DOL determines that the fiduciary rule is inconsistent with the priorities of the Trump administration to empower Americans to make their own financial decisions and save for retirement.
On February 9th, the DOL filed with the Office of Management and Budget (OMB) a document titled “Definition of the Term “Fiduciary” – Delay of Applicability Date” which is believed to be a request to extend the applicability date of the regulation by 180 days.
The delay, if finalized, would give the DOL time to review the regulation and begin the rulemaking process to revise or possibly rescind the rule. This has been a long process and the final outcome is far from certain. Until the rule is formally delayed, however, financial professionals serving retirement plans and IRAs would be prudent to prepare for the rule’s timely implementation. In fact, some financial services have indicated that they view the rule’s requirements as best practices that they intend to follow irrespective of any changes to the requirements.
In both 2010 and 2015, the DOL issued proposed fiduciary regulations to address Obama administration concerns regarding the fees being paid by retirement plan sponsors and participants. As a result of comments received by the DOL, both the 2010 and 2015 proposed regulations were withdrawn.
Following an extensive comment period and hearings, on April 8, 2016, the Department of Labor issued their Final Fiduciary Regulations which updates the definition of what it means to be an “investment advice fiduciary” to retirement plans and Individual Retirement Accounts (IRAs) for the first time since 1975. The final rule greatly expands the circumstances under which financial professionals, or anyone who gives advice with regard to retirement plans or IRA assets, will be deemed a fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA).
The final rule is intended to address concerns that some financial professionals can set their fees through the recommendation of high-cost investments to plan sponsors and participants. The final rule includes a list of measures that many financial professionals and their firms must adopt to ensure that their arrangements with retirement plans and IRAs do not create prohibited transactions under ERISA.
It is worth noting that this regulation met with fierce resistance from the financial services industry, in part because it requires significant changes to long-standing business practices for many financial institutions, particularly brokerage firms concerned about the considerable costs they will incur to comply.
With the knowledge that the regulation might face challenges with a new administration or Congress, and that time was necessary for firms to ready themselves to comply, the regulations were given a June 7, 2016, effective date, but an April 10, 2017, applicability date.
By making the regulations effective in June of 2016, the DOL ensured that a subsequent administration would have to complete the legally-mandated notice, comment, and review process to modify the new regulation.
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