July 7, 2020

Volume X, Number 189

July 07, 2020

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July 06, 2020

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DOL Proposes Delay of Fiduciary Rule Applicability Date

The Department of Labor (DOL) published a proposed rule to delay the applicability date of the fiduciary advice regulation and related exemptions. The delay would extend the date from April 10 to June 9. To be clear, this is not an extension of the applicability date…just a proposal to extend it. It still needs to go through a regulatory process.

To understand the timing of when a delay might actually go into effect, let’s look at the process. The first step is a 15 day comment period for interested parties to submit comments on whether a delay is appropriate. The second step is for the DOL to evaluate the comments and decide whether to go forward. We think it’s likely they will do so. The next step is for the finalized rule to go back to the Office of Management and Budget (OMB) for approval, probably around March 24. After OMB approves the DOL’s final rule to extend the date, it is published in the Federal Register. Our best guess is that this will happen during the first week in April, i.e., before April 10.

We also expect the DOL will make the delay effective immediately on publication so that the fiduciary rule and exemptions do not become applicable. In most cases, there is a built-in waiting period of 60 days after a final rule is published. This waiting period would put the effective date of the delay in early June, roughly six weeks after the original applicability date.

The DOL can accelerate the effective date of this type of rule for good cause. We expect it will do so and that the justification would be based on the disruptive effect of having an effective date of the delay after the applicability date of the regulation it is designed to delay.

The DOL has also announced a 45 day comment period on whether the fiduciary rule as currently drafted will adversely affect retirement investors. This is to enable the DOL to perform the analysis required in the February 3 Presidential Memorandum calling for a review of the fiduciary regulation.

So what does all this mean? There are three possible outcomes at the end of the 45 day period. DOL will:

  • Permit the fiduciary rule and exemptions to become applicable on June 9

  • Begin the regulatory process to revoke the rule and exemptions

  • Begin the process to modify the rule and exemptions

It is possible that the DOL will not be able to make this decision by June 9 and will further delay the applicability date. But in the end, the outcome has to be one of these three.

The other important point to keep in mind is that the delay and possible revocation or modification of the fiduciary rule does not mean there are no fiduciary rules. The existing rules that have been in place for decades remain in place. But because of the intense focus on fiduciary standards over the last several years, we think it is likely that the existing rules will be subject to greater scrutiny, both from the regulators and the private sector.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume VII, Number 61


About this Author

Fred Reish, Drinker Biddle Law Firm, Los Angeles, Labor and Employment Law Attorney

Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.

Fred works with both private and public sector entities and their plans and fiduciaries and represents plans, employers and fiduciaries before federal agencies such as the DOL and IRS. He consults with banks, trust companies, insurance companies and mutual fund management companies on 401(k) recordkeeping services, investment products and...

(310) 203-4047
Bruce Ashton, Drinker Biddle Law Firm, Los Angeles, Employment Benefits Attorney

Bruce L. Ashton has more than 35 years of experience handling employee benefits matters. His practice concentrates on representing plan service providers (including RIAs, independent record-keepers, third-party administrators, broker-dealers and insurance companies) in fulfilling their obligations under ERISA. His experience includes representing public and private sector plans and their sponsors, negotiating the resolution of plan qualification issues under IRS remedial correction programs, advising and defending fiduciaries on their obligations and liabilities, and structuring qualified plans, non-qualified deferred compensation arrangements.

Combining his employee benefits and transactional experience, Bruce is also active in the installation and funding of employee stock ownership plans (ESOPs).

K.Elise Norcini, Drinker Biddle Law Firm, Corporate and Tax Attorney

K. Elise Norcini provides representation to a variety of corporate, institutional and tax-exempt clients regarding employee benefits and executive compensation issues. Elise is a contributor to Drinker Biddle’s Broker-Dealer Law Blog, which provides practical insights on litigation, regulatory, compliance and fiduciary issues impacting broker-dealers.

Prior to joining Drinker Biddle, Elise was in-house legal counsel at The Northern Trust Company and, in part, represented Northern in...