Fiduciary rule PTEs’ implementation again delayed

The Department of Labor (DOL) is extending, from January 1, 2018 to July 1, 2019, the special transition period for the fiduciary conflict of interest rule’s Best Interest Contract Exemption (BICE) and the Principal Transactions Exemption, and the applicability of certain amendments to Prohibited Transaction Exemption 84-24 (PTEs). The extension amendments to these exemptions, which are effective January 1, 2018, affect participants and beneficiaries of plans, IRA owners and fiduciaries of these plans, and IRAs.

Applicability delayed

The DOL issued final fiduciary regulations that define the term “fiduciary” and include provisions to ensure that investors’ best interests are served in making investment recommendations. Accompanying the regulations were prohibited transaction exemptions (PTEs), including BICE, the Class Exemption for Principal Transactions, and amendments to existing prohibited transaction exemptions.
The regulations and prohibited transaction exemptions were initially set to become applicable as of April 10, 2017. However, on April 7, 2017, the DOL issued a final rule extending for 60 days the applicability dates of the fiduciary rule and related exemptions. At that time, investment advice providers to retirement savers became fiduciaries, and the “impartial conduct standards” applied for the exemptions’ requirements. Other exemption conditions originally scheduled to become applicable on April 10, 2017 were delayed to January 1, 2018. The delay was to give the DOL time to conduct the review directed by President Trump’s memorandum of February 3, 2017.
On July 6, 2017, the DOL issued a Request for Information on the fiduciary rule to provide a public opportunity for comment on both the basis for new exemptions or changes/revisions to the rule and PTEs, as well as the advisability of extending the January 1, 2018 applicability date of certain provisions in the BICE, the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, and Prohibited Transaction Exemption 84-24.
The DOL later released proposed amendments that would further delay the applicability dates of certain provisions of the fiduciary rule’s exemptions, including the BICE, from its January 1, 2018 applicability date until July 1, 2019. The DOL proposed to extend the special transition period under Sections II and IX of the BICE and Section VII of the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs. The Department also proposed a delay of certain amendments to Prohibited Transaction Exemption 84-24 for the same period.

New delay

The DOL said that the extension gives the Department time to consider public comments submitted under the DOL’s July 6, 2017 Request for Information, and the criteria set forth in the Presidential Memorandum of February 3, 2017, including whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from and action by the Securities and Exchange Commission, state insurance commissioners, and other regulators. President Trump directed the DOL to prepare an updated analysis of the likely impact of the Fiduciary Rule on access to retirement information and financial advice.
The DOL is concerned that without a delay in the applicability dates, consumers may face significant confusion, and regulated parties may incur undue expense to comply with conditions or requirements that the Department ultimately might decide to revise or repeal.

Transition period requirements

The DOL has issued a set of frequently asked questions that map out the phased-in conflict of interest requirements that must be met during the transition period, initially set from June 9, 2017, to January 1, 2018, and now extended to July 1, 2019. This guidance, like the fiduciary rule and related exemptions, is generally limited to advice concerning investments in IRAs, ERISA-covered plans, and other plans covered by Code Sec. 4975.
During the extended transition period, fiduciary advisers have an obligation to give advice that adheres to “impartial conduct standards” under which advisers must adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements.

Temporary nonenforcement policy

The DOL is also extending the temporary enforcement policy contained in Field Assistance Bulletin 2017-02 to cover the new 18-month extension period. Accordingly, from June 9, 2017 to July 1, 2019, the Labor Department will notpursue claims against fiduciaries working diligently and in good faith to comply with the fiduciary rule and PTEs, or treat those fiduciaries as being in violation of the fiduciary rule and PTEs.
Between now and July 1, 2019, when the exemptions’ remaining conditions are scheduled to become applicable, the DOL intends to complete its review under the Presidential Memorandum and decide whether to propose further changes.

Source: DOL News Release No. 17-1581-NAT.
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