ERISA-DOL Announces A Temporary Enforcement Policy On New, Final Fiduciary Rule

In Field Assistance Bulletin No. 2017-02 (the “FAB”) , the U.S. Department of Labor (the “DOL”) announces a temporary enforcement policy related to the DOL final rule defining who is a “fiduciary” under ERISA, 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”).  Here is what the FAB said.

BACKGROUND

Items Previously Issued.  The final rule, entitled “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule — Retirement Investment Advice,” was published in the Federal Register on April 8, 2016, became effective on June 7, 2016, and had an original applicability date of April 10, 2017.  The PTEs also had an original 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 examine whether the fiduciary duty rule may adversely affect the ability of Americans to gain access to retirement information and financial advice and to prepare an updated economic and legal analysis concerning the likely impact of the rule as part of that examination.  On March 2, 2017, the DOL published a notice proposing a 60-day delay in the applicability date of the fiduciary duty rule and the related PTEs and seeking public comments on the questions raised in the Presidential Memorandum, and generally on questions of law and policy concerning the fiduciary duty rule and PTEs.

Additional Items.  On March 10, 2017, the DOL issued FAB 2017-01 to announce a temporary enforcement policy related to its proposal to extend for 60 days the applicability date of the fiduciary duty rule and the related PTEs.  On April 7, 2017, the DOL promulgated a final rule extending the applicability date of the fiduciary duty rule by 60 days from April 10, 2017, to June 9, 2017. 82 Fed. Reg. 16902.  It also extended to June 9 the applicability dates of the BIC Exemption and the related Principal Transactions Exemption, and required fiduciaries relying on these exemptions to adhere to the impartial conduct standards set forth in the exemptions only as conditions of the exemptions during a transition period through January 1, 2018. Id  In this manner, the DOL established a phased implementation period from June 9, 2017, until January 1, 2018, during which time the fiduciary duty rule will be applicable and these new exemptions will be available, subject to the impartial conduct standards only.  The final rule further delayed the applicability of amendments to an existing exemption, Prohibited Transaction Exemption 84–24, until January 1, 2018, other than the impartial conduct standards, which will become applicable on June 9, 2017.  Finally, the final rule extended for 60 days the applicability dates of amendments to other previously granted exemptions. Id.

Public Comment Period On Presidential Memorandum.  The public comment period on questions raised in the Presidential Memorandum, and generally on questions of law and policy concerning the fiduciary duty rule and PTEs, closed on April 17, 2017.

Further DOL Study.  The DOL is actively engaging in a careful analysis of the issues raised in the President’s Memorandum.  It is possible, based on the results of the examination, that additional changes will be proposed to the fiduciary duty rule and PTEs.  The DOL also intends to issue a Request for Information (RFI) in the near future seeking additional public input on specific ideas for possible new exemptions or regulatory changes based on recent public comments and market developments.  The DOL is also aware that after the fiduciary duty rule and PTEs were issued firms have begun to develop new business models and innovative market products to mitigate conflicts of interest.  The RFI will specifically ask for public comment on whether it is likely to take more time to implement these new approaches than what the DOL envisioned when it set January 1, 2018, as the applicability date for full compliance with all of the exemptions’ conditions, and, if so, whether an additional delay in the January 1, 2018 applicability date would reduce burdens on financial services providers and benefit retirement investors by allowing for a smoother implementation of those market changes.

Compliance Assistance.  Although the DOL has a statutory responsibility and broad authority to investigate or audit employee benefit plans and plan fiduciaries to ensure compliance with the law, compliance assistance for plan fiduciaries and other service providers is also a high priority for the DOL.  The DOL has repeatedly said that its general approach to implementation will be marked by an emphasis on assisting (rather than citing violations and imposing penalties on) plans, plan fiduciaries, financial institutions, and others who are working diligently and in good faith to understand and come into compliance with the fiduciary duty rule and exemptions.  Consistent with that approach, the DOL has determined that temporary enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners.

IRS Enforcement.  On March 28, 2017, the Treasury Department and the IRS issued IRS Announcement 2017-4 stating that the IRS will not apply § 4975 (which provides excise taxes relating to prohibited transactions) and related reporting obligations with respect to any transaction or agreement to which the DOL’s temporary enforcement policy described in FAB 2017-01, or other subsequent related enforcement guidance, would apply. The Treasury Department and the IRS have confirmed that, for purposes of applying IRS Announcement 2017-4, this FAB 2017-02 constitutes “other subsequent related enforcement guidance.”

TEMPORARY ENFORCEMENT POLICY

Accordingly, during the phased implementation period ending on January 1, 2018, the DOL will 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.

To the extent that circumstances surrounding the applicability date of the fiduciary duty rule and exemptions give rise to the need for other temporary relief, the DOL will consider taking such additional steps as necessary.

This FAB is an expression of the DOL’s temporary enforcement policy; and it does not address the rights or obligations of other parties.

NOTE ON ADDITIONAL GUIDANCE:  As additional guidance on the new, final fiduciary rule, the DOL has issued new FAQs entitled “Conflict of Interest FAQs (Transition Period).  The new FAQs are here.

 

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