ERISA-DOL Announces Temporary Enforcement Policy For New Definition Of Fiduciary And Related New Prohibited Transaction Exemptions

There is uncertainty about how the Trump administration will ultimately treat the new definition of fiduciary for ERISA purposes, and the related new prohibited transaction exemptions, that have been promulgated by the U.S. Department of Labor (the “DOL”).  Accordingly, the DOL has issued Field Assistance Bulletin No. 2017-01 (the “FAB”), which sets out a temporary enforcement policy for these new rules.  The FAB is here, and says the following.

BACKGROUND

The FAB announces a temporary enforcement policy related to the DOL’s recent proposal to extend for sixty (60) days the applicability date of:

–the final rule revising the definition of “fiduciary” under ERISA and the Internal Revenue Code (the “Code”) (the “New Fiduciary Rule”), and

–the related prohibited transaction exemptions, including the Best Interest Contract Exemption (the “BIC Exemption”), the Class Exemption for Principal Transactions In Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (the “Principal Transactions Exemption”), and certain amended prohibited transaction exemptions (collectively the “PTEs”).

The New Fiduciary Rule was published in the Federal Register on April 8, 2016, became effective on June 7, 2016, and has an applicability date of April 10, 2017.  The PTEs also have an applicability date of April 10, 2017, with a phased implementation period ending on January 1, 2018, for the BIC Exemption and the Principal Transactions Exemption.

The President, by Memorandum to the Secretary of Labor dated February 3, 2017, directed the DOL to: (1) examine whether the New Fiduciary Rule may adversely affect the ability of Americans to gain access to retirement information and financial advice and (2) prepare an updated economic and legal analysis concerning the likely impact of the New Fiduciary Rule as part of that examination.  On March 2, 2017, the DOL published a notice seeking public comments on: (i) a proposal to adopt a 60-day delay of the April 10, 2017 applicability dates described above, (ii) the questions raised in the Presidential Memorandum, and (iii) generally on questions of law and policy concerning the fiduciary duty rule and PTEs.  The March 2 notice stated that, if adopted as a final rule, the proposed 60-day delay would be effective on the date of publication in the Federal Register of this final rule delaying the April 10 applicability date.

Although the Department intends to issue a decision on the March 2 proposal in advance of the April 10 applicability date, interested parties, for example financial services institutions, have expressed concern about the adverse effects of the actual effective dates of the New Fiduciary Rule and the PTEs.  The DOL therefore concludes that temporary enforcement relief is appropriate.

TEMPORARY ENFORCEMENT POLICY

In recognition of the foregoing concerns, the DOL is adopting the following temporary enforcement policy:

  1. In the event the DOL issues a final rule after April 10 implementing a delay in the applicability date of the New Fiduciary Rule and related PTEs, the DOL will not initiate an enforcement action because an adviser or financial institution did not satisfy conditions of the rule or the PTEs during the “gap” period before the delay ends, including a failure to provide retirement investors with disclosures or other documents intended to comply with provisions of the rule or the related PTEs.
  2. In the event the DOL decides not to issue a delay in the New Fiduciary Rule and related PTEs, the DOL will not initiate an enforcement action because an adviser or financial institution, as of the April 10 applicability date of the rule, failed to satisfy conditions of the rule or the PTEs, provided that the adviser or financial institution satisfies the applicable conditions of the rule or PTEs, including sending out required disclosures or other documents to retirement investors, within a reasonable period after the publication of a decision not to delay the April 10 applicability date. The DOL will also treat the 30-day cure period under Section IX(d)(2)(vi) of the BIC Exemption and Section VII(d)(2)(v) of the Principal Transactions Exemption as available to financial institutions that, as of the April 10 applicability date, did not provide to retirement investors the disclosures or other documents described in Section IX(d)(2)(vi) of the BIC Exemption and Section VII(d)(2)(v) of the Principal Transactions Exemption.

To the extent that circumstances surrounding the decision on the proposed delay of the April 10 applicability date give rise to the need for other temporary relief, including prohibited transaction relief, the DOL will consider taking such additional steps as necessary.

 

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