As we previously reported in our Legal Update, in April 2016 the U.S. Department of Labor (“DOL”) replaced its 1975 regulation that set the parameters for determining when a person should be treated as a fiduciary under ERISA when providing advice with respect to investment matters (the “Fiduciary Rule”). The new definition treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a much wider array of relationships than was true under the 1975 regulation. In connection with the publication of the new Fiduciary Rule, the DOL also published two new administrative class exemptions from the prohibited transaction provisions of ERISA and the Internal Revenue Code—the BIC Exemption and the Principal Transactions Exemption—as well as amendments to PTE 84-24, commonly relied upon for the sale of insurance contracts to ERISA plans. As discussed in the Legal Update, just as plan fiduciaries geared up for these major changes, the DOL began to back peddle as a result of the change in administration and new leadership at the DOL. So where are we now?
- On November 27, 2017, DOL further extended its previously-announced “transition period” for the BIC Exemption and Principal Transaction Exemption (PTE 2016-01 and 2016-02, respectively) for 18 months until July 1, 2019, and further delayed the applicability date of certain amendments to PTE 84-24 (relating to the sale of insurance contracts) for the same period.
- DOL announced in Field Assistance Bulletin 2017-03, dated August 30, 2017, that it will not pursue a claim against any fiduciary based on failure to satisfy the BIC Exemption or the Principal Transactions Exemption, or treat any fiduciary as being in violation of either of these exemptions, if the sole failure of the fiduciary to comply with the contract requirement under either exemption is the inclusion of an arbitration agreement preventing investors from participating in class-action litigation. DOL noted that the U.S. Government is no longer challenging such arbitration agreements. FAB 2017-03 states that this policy will continue to apply as long as the exemptions would be unavailable upon the inclusion of such an arbitration agreement.
- To date, nothing further has been published by the DOL with respect to its general non-enforcement policy set forth in Field Assistance Bulletin 2017-02, dated May 22, 2017. As a review, in FAB 2017-02, DOL announced that 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 rule and exemptions and will not treat those fiduciaries as being in violation of the fiduciary rule and exemptions; and further noted that to the extent that circumstances surrounding the applicability date of the fiduciary rule and exemptions give rise to the need for other temporary relief, the DOL will consider taking such additional steps as necessary.
- The comment period for the DOL’s request for information on the Fiduciary Rule published on June 29, 2017 closed on August 7, 2017. Hundreds of comments were submitted and are currently under review by DOL.
- SEC Chairman Jay Clayton testified on fiduciary standards of conduct for financial professionals before the Senate Committee on Banking, Housing and Urban Affairs. In his testimony Clayton assured the Committee that the SEC is engaging expeditiously and constructively with the DOL regarding the changes being considered to the Fiduciary Rule. Clayton also stated that the SEC is seeking to develop standards for financial professionals that are consistent across retirement and non-retirement assets and coordinated with other regulatory entities. Labor Secretary Acosta has echoed the need for uniform standards of conduct in various informal statements attributable to him. The imposition of divergent standards for dealings by financial professionals with retail customers has been a major source of confusion and criticism.
The take away for plan fiduciaries is that the landscape for the Fiduciary Rule is likely to change significantly, but not in the near future. The DOL’s non-enforcement policy provides some relief during this transition period; but still requires plan fiduciaries to make diligent, good faith efforts to comply. Fiduciaries should also be aware that the DOL’s policy will not protect them from private claims. Our Legal Update provides more guidance on what steps plan fiduciaries should consider in light of these developments.