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DOL to Propose Extension of Fiduciary Rule Transition Period

The proposal is expected to delay additional conditions of exemptions from January 1, 2018 to July 1, 2019, but the ultimate length of delay will not be clear until the DOL publishes a final rule.

The US Department of Labor (DOL) has submitted to the Office of Management and Budget (OMB) proposed amendments to extend the transition period of the Best Interest Contract Exemption, Principal Transactions Exemption, and PTE 84-24 (regarding insurance contracts and annuities).

According to a notice filed in one of the pending lawsuits challenging the DOL fiduciary rule and exemptions, the proposed amendments seek to defer the applicability of the full conditions of such exemptions for 18 months until July 1, 2019, but this date is subject to OMB clearance and may be changed before the proposal is officially published in the Federal Register. Moreover, the proposal likely will be subject to a notice and comment period so that interested parties may comment on the merits and length of the delay, as well as to further OMB review of any DOL proposed final rule. Thus, the ultimate length of the delay (if any) will not be clear until the DOL publishes a final rule.

Implications of a Delay

A delay in the applicability of the exemption conditions would provide additional time for the DOL to continue to review the fiduciary rule and exemptions as directed by the president—including consideration of the comments received in connection with other questions in the request for information (RFI)—and make any changes or revisions it deems appropriate.

Moreover, a delay would extend the transition period during which the exemptions require only that fiduciaries provide investment advice that satisfies the impartial conduct standards (i.e., duty of prudence, duty of loyalty, reasonable compensation, and no misleading statements). We note that the DOL has issued two sets of FAQs on the requirements during the transition period. As discussed in our prior coverage of these FAQs, this guidance generally indicates that fiduciaries have flexibility as to how they may demonstrate compliance with the impartial conduct standards, particularly with respect to compensation structures.

What Firms Should Do Now

We strongly encourage interested parties to comment on the proposed amendments to extend the applicability date once they are published. We note that, although the formal comment period for the other sections of the RFI closed on August 7, 2017, the DOL has acknowledged that it will endeavor to consider comments submitted after August 7.

While this latest development is a good sign that there ultimately could be a delay of the additional exemption conditions until July 1, 2019, there is no certainty until a final rule is published in the Federal Register. Until then, the exemptions will continue to reflect the January 1, 2018 applicability date. As such, firms will want to evaluate how best to address this uncertainty in determining their compliance plans.

Copyright © 2018 by Morgan, Lewis & Bockius LLP. All Rights Reserved.


About this Author

Daniel Kleinman, Morgan Lewis, Labor and employment lawyer

Daniel R. Kleinman advises businesses on the fiduciary responsibilities provisions (Title I) of the Employee Retirement Income Security Act (ERISA). He also counsels these clients on related tax, corporate, and securities laws in connection with the structuring and marketing of investment products (including private equity and hedge funds) and financial services to employee benefits plans. Additionally, Daniel handles issues related to the regulation of broker-dealers and investment advisers under US federal and state securities laws.

Michael Richman, Employment attorney, Morgan Lewis

Michael B. Richman counsels clients on the fiduciary responsibility rules under the Employee Retirement Income Security Act (ERISA), including the ERISA prohibited transaction rules. He advises plan sponsors on investment matters for defined benefit and defined contribution plans. He also counsels banks, investment adviser firms, and broker-dealer firms on ERISA compliance for ERISA plan separately-managed accounts, collective investment funds, private funds, and other arrangements. Additionally, he provides guidance to IRA custodians on permissible IRA investments and investment restrictions.

Lindsay Jackson, Morgan Lewis, Employment attorney

Lindsay B. Jackson counsels financial services clients on issues that arise under the Employee Retirement Income Security Act (ERISA) fiduciary responsibility and prohibited transaction rules. Clients turn to her for guidance on ERISA and IRC compliance when providing services to plans and IRAs. Lindsay also negotiates private fund investments and other service provider agreements on behalf of plans and plan asset entities. She advises clients involved in US Department of Labor and SEC examinations and investigations.

William Marx, Morgan Lewis Law Firm, Philadelphia, Labor and Employment Attorney

William J. Marx helps employee benefit plan sponsors and financial service providers with a range of matters related to employee benefits. His focus includes advising clients on qualified and nonqualified retirement plan issues, and the fiduciary and prohibited transaction rules under ERISA. William has several years of business experience in the retirement plan industry, including consulting plan sponsors on plan design, employee education, and investments among other business decisions.