DOL (Officially) Proposes (Another) Delay in Fiduciary Regulation

By Nevin Adams • August 30, 2017 • 0 Comments
The Labor Department has made its proposed delay in the full application of the Best Interest Contract Exemption till July 1, 2019 official.

Less than 48 hours after the Office of Management and Budget (OMB) completed its review of the Labor Department’s proposal to extend the transition period and full BIC applicability date of the fiduciary regulation, the Federal Register contained a proposal to “extend the special transition period under sections II and IX of the Best Interest Contract Exemption and section VII of the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs”, as well as “the applicability of certain amendments to Prohibited Transaction Exemption 84-24 for the same period.” 

The notice explains that the primary purpose of these proposed amendments is “to give the Department of Labor the time necessary to consider possible changes and alternatives to these exemptions.” The notice explains that the Labor Department is “particularly concerned that, without a delay in the applicability dates, regulated parties may incur undue expense to comply with conditions or requirements that it ultimately determines to revise or repeal.”

The present transition period is, of course, from June 9, 2017, to Jan. 1, 2018. The new transition period would end on July 1, 2019. The proposal includes a 15-day comment period.

The first inkling of the proposed delay arrived in the form of a “notice of administrative action” submitted in the U.S. District Court for the District of Minnesota, where litigation regarding the fiduciary regulation brought by Thrivent Financial for Lutherans is still pending.

Reasons for Delay

In outlining its rationale for the proposed delay, the Labor Department noted that it has not yet completed its reexamination of the fiduciary rule and prohibited transaction exemptions (PTEs), as directed by President Trump on Feb. 3, 2017, and that more time is needed to “carefully and thoughtfully review the substantial commentary received in response to the March 2, 2017, solicitation for comments and to honor the President’s directive to take a hard look at any potential undue burden.” Also mentioned was the recent RFI published by the Securities and Exchange Commission (SEC) and the invitation to the Labor Department to “engage constructively” in that effort.

The Labor Department also said that it “…anticipates it will propose in the near future a new and more streamlined class exemption built in large part on recent innovations in the financial services industry,” but that neither that, nor any potential changes to the fiduciary rule and PTEs, could “realistically be implemented by the current January 1, 2018 applicability date.”

Comments Requested

The proposal acknowledges that the Labor Department is interested in what it termed an “alternative approach” raised by several commenters to its RFI – specifically that the DOL institute a delay that would end a specified period after a certain action on the part of the DOL, e.g., a delay lasting until 12 months after the Department concludes its review as directed by the Presidential Memorandum. While the Labor Department said it was concerned that this type of delay “would provide insufficient certainty to Financial Institutions and other market participants who are working to comply with the full range of conditions under the relevant PTEs,” and that this type of delay “…would unnecessarily harm consumers by adding uncertainty and confusion to the market,” the proposal requests comments on “whether it could structure the delay in a way that could be beneficial to retirement investors and to market participants,” and if so, “what event or action on the part of the Department should begin the period by which the end of the delay is measured (e.g., the end of the Department’s examination pursuant to the Presidential Memorandum, issuance of a proposed or final new PTEs or a statement that the Department does not intend any further changes or revisions.”

Separately, the proposal also requests comments on “whether it would be beneficial to adopt a tiered approach,” say a final rule that delayed the transition period until the earlier or the later of (1) a date certain, or (2) the end of a period following the occurrence of a defined event. The Labor Department says it is “…particularly interested in comments as to whether such a tiered approach would provide sufficient certainty to be beneficial, and how best it could communicate with stakeholders the determination that one date or the other would trigger compliance.” It also said it was interested in comments that provide insight as to any relative benefits or harms of these three different delay approaches: 

  • a delay set for a time certain, including the 18 months proposed by this document; 
  • a delay that ends a specified period after the occurrence of a specific event; and 
  • a tiered approach where the delay is set for the earlier of or the later of (1) a time certain and (2) the end of a specified period after the occurrence of a specific event.

Finally, though it opted not to adopt this approach, the Labor Department said that several commenters suggested that it “condition any delay of the Transition Period on the behavior of the entity seeking relief under the Transition Period.” The proposal does, however, “solicit comments on this approach, in particular the benefits and costs of this suggestion, and ways in which the Department could ensure the workability of such an approach.”





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