On April 4, 2017 the DOL granted a 60 day extension of the Fiduciary Rule (“Rule”) from April 10, 2017 to June 9, 2017 and also provided additional transition relief in order to enable the Department to perform an examination and to consider possible changes with respect to the Rule, Principal Transaction Exemptions (PTEs”) and other prohibited transaction exemptions as requested by the President’s Memorandum to the Secretary of Labor on February 3, 2017.
Final Rule Extension of Applicability Date
- Applicability Date of June 9, 2017. The Rule of defining who is a “fiduciary” under ERISA and IRC has been extended 60 days until June 9, 2017.
- Impartial Conduct Standards. The conditions to provide exemptive relief during the Transition Period (from June 9, 2017 through January 1, 2018) are amended. Only the Impartial Conduct Standards will be applicable on June 9, 2017, including:
- make recommendations that are in the customer’s best interest;
- avoid misleading statements and
- charge no more than a reasonable compensation for services.
- Other Previously Granted Exemptions. Changes to other preexisting class exemptions amended by the DOL in connection with the Rule are applicable in full on June 9, 2017.
Applicable on January 1, 2018:
- Amendments to PTEs 84-24 (other than Impartial Conduct Standards).
- Best Interest Contract Exemption (“BIC”) and the Class Exemption for PTEs (other than Impartial Conduct Standards).
- The conditions for exceptive relief during the new Transition Period (June 9, 2017 through January 1, 2018) are amended for the BIC and PTEs. The following conditions must now be met by January 1, 2018:
- transition notice;
- recordkeeping requirement;
- designation of BIC compliance office or officers and
- specific written disclosures of fiduciary compliance.
Final Extension Challenges
- The Department has stated in this final rule extending the applicability dates, to not expect further delays of the June 9, 2017 applicability date. The Department will use the time between June 9, 2017 to January 1, 2018 to complete the updated economic and legal analysis per the President’s Memorandum.
- Because the Rule will be applicable prior to the completion of the analysis required, the DOL could take the position that the retirement services industry is able to comply with the Rule. In addition, the Department could argue that making changes to the Rule would drive up compliance costs further because the industry would have been expected to be in full compliance by the end of the transition period of January 1, 2018 and will have already spent the anticipated start-up costs.
Still awaiting the President’s nominee, Alexander Acosta for Secretary of Labor to be confirmed by the Senate. The confirmed nominee will appoint a new Assistant Secretary for EBSA, who would be the person that oversees the results of the DOL’s review.