On March 1, 2017, the U.S. Department of Labor (DOL) announced a proposed 60-day extension of the final rule commonly known as the “Fiduciary Duty Rule,” which if approved would delay the effective date from April 10, 2017 to June 9, 2017. The announcement was followed a day later (March 2, 2017) with a formal proposed extension published in the Federal Register. It is important to note that this action represents a proposed extension of the applicability date, not an actual extension. The proposal still needs to go through a regulatory process. As part of the proposal, the DOL said it will accept public comments on the proposed delay for 15 days following publication of the proposal in the Federal Register (final day for comments being March 17, 2017). In addition, the DOL solicited comments during the next 45 days on the issues raised in President Trump’s memorandum (discussed below), with comments to be submitted on or before April 17, 2017.
As many readers will remember, approval of the Fiduciary Duty Rule capped a five-plus year effort by the DOL. During that period the DOL proposed a new rule, considered comments (mostly negative), withdrew the proposal, issued a new proposal, and then issued a final rule in April 2016. In part, the new rule provided a broader definition of who constitutes a “fiduciary” for purposes of conflict of interest rules under the Employee Retirement Income Security Act (ERISA), with an eye toward reducing (or at least requiring the disclosure of) potential conflicts of interest associated with the delivery of investment advice to retirement plan participants.
The proposed 60-day extension is in response to a memorandum that President Trump signed on February 3, 2017, directing the DOL to review the Fiduciary Duty Rule. President Trump’s memorandum did not expressly request the DOL to delay the Fiduciary Duty Rule’s effective date, but rather directed the DOL to evaluate whether the Fiduciary Duty Rule is likely to harm investors by reducing access to their retirement savings, or otherwise result in disruptions, increased fees, or litigation that would adversely affect investors. In proposing the extension, the DOL said it needed time to collect and consider information related to the issues raised in the President’s memorandum before the Fiduciary Duty Rule, and associated exemptions, become effective.
The Trump Administration has been clear in expressing its view that the new Fiduciary Duty Rule is too burdensome on retirement plan advisors, which ultimately will negatively affect plan participants, especially participants with smaller account balances, including accounts in IRAs. Proponents of the new Fiduciary Duty Rule advocated that those plan participants were the exact individuals the Fiduciary Duty Rule was designed to protect. In anticipation of the Fiduciary Duty Rule’s effective date, many advisors in the retirement plan community have already expended significant efforts to revise their operations to comply. Consequently, some companies have indicated that they will likely comply with the new Fiduciary Duty Rule, even if it were to be repealed. In addition, many employers will now expect their plan investment advisors to meet the standard of care expressed in the Fiduciary Duty Rule, whether or not it takes effect.
Effect of Action
The DOL’s proposed 60-day delay would extend the applicability date of the Fiduciary Duty Rule from April 10, 2017 to June 9, 2017. It is important to note that this action represents a proposed extension of the applicability date, not an actual extension. The proposal still needs to go through a regulatory process. As part of the proposal, the DOL said it will accept public comments on the proposed delay for 15 days following publication of the proposal in the Federal Register (final day for comments being March 17, 2017). In addition, the DOL solicited comments on the issues raised in the President’s memorandum, which comments will be accepted for 45 days (comments to be submitted on or before April 17, 2017).
So what will happen next? One of four things seems likely:
- The DOL will permit the Fiduciary Duty Rule, and associated exemptions, to become applicable on June 9, 2017, or perhaps a later date;
- The DOL will begin the regulatory process to revoke the Fiduciary Duty Rule;
- The DOL will begin the process to modify the Fiduciary Duty Rule; or
- The DOL will decide it has not had enough time to fully consider the matter, and will seek a further extension, and continue work on one of the three outcomes described above.
We will provide more detailed updates when the DOL issues specific regulatory actions.
For those interested in how the Trump Administration is pursuing the campaign promise to repeal and replace the Affordable Care Act, please see our ongoing series of updates on The Changing State of the ACA.