August 8, 2020

Volume X, Number 221

August 07, 2020

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August 06, 2020

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August 05, 2020

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Talking Through the DOL’s Proposed Prohibited Transaction Exemption, Episode 2: A New Interpretation of Fiduciary Conduct

On June 29, the Department of Labor (DOL) issued a proposed prohibited transaction exemption, filling the void left when the Fifth Circuit vacated the Obama-era 2016 DOL regulation in 2018. While the new proposed rule is primarily a class exemption that harmonizes ERISA conditions for receiving commissions and other variable compensation with existing securities law standards, it also does a lot more. In this podcast episode, Faegre Drinker’s Jim Jorden and Brad Campbell focus on the proposed rule’s lengthy — and unusual — preamble, which articulates a whole new interpretation of fiduciary conduct, including defining rollover recommendations as fiduciary advice.

In this recording, Jim and Brad provide context, insight and actionable advice for stakeholders on the following questions (and more) related to this substantial preamble to the DOL’s proposed rule.

  • The preamble details how the “regular basis” component of the five-part test for the investment adviser definition can be met. How does that interpretation differ from previous understandings of this component? What does it mean for rollover recommendations? And does this new interpretation conflict with judicial interpretations of such conduct?

  • The preamble also notes that both the financial institution and investment adviser must disclose that they are “fiduciaries” and provide various disclosures. It also notes that most insurance companies pay their agents on a commission basis, and that some agents are independent and some are employees. What issues emerge from this dynamic, especially as it pertains to the need to document specific reasons why any recommendation to rollover assets from one plan to another is in the best interest of the retirement investor?

  • The earlier DOL fiduciary rule exemption contemplated a form of contract with the ERISA plan participant, which gave rise to concerns about litigation over the terms of such a contract. How does the new proposal address this issue?

In our next podcast, we will take a more thorough look at the ways in which the new proposed rule might increase liability and expose insurers, producers and other stakeholders to lawsuits.

 

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume X, Number 197

TRENDING LEGAL ANALYSIS


About this Author

James F. Jorden Securities Litigation Drinker Biddle Law Firm
Partner

James F. Jorden represents many of the country’s largest financial institutions in securities, corporate, and pension litigation. He is experienced in national class action litigation, having served as lead or associate counsel in more than 100 securities, insurance, RICO, and other class actions. Over the past 20 years, Jim has been lead trial counsel in more than 50 individual cases in federal and state courts throughout the United States. He has argued before the United States Supreme Court, eight of the U.S. circuit courts, and numerous state courts of...

202-230-5228
Bradford Campbell Labor & Employment Attorney Faegre Drinker Biddle & Reath Washington, D.C.
Partner

Bradford Campbell is a nationally recognized figure in employer-sponsored retirement plans who leverages his prior experience as the U.S. Assistant Secretary of Labor for Employee Benefits to advise clients across a broad range of issues related to the Employee Retirement Income Security Act (ERISA). As ERISA’s former “top cop” and primary regulator, Brad has detailed and wide-ranging knowledge of the structure and operation of ERISA plans, insight that he applies to client engagements.

Brad advises financial service providers and plan sponsors, particularly in relation to ERISA Title I issues, such as fiduciary conduct and prohibited transactions as well as developing policy issues. A prominent voice in the debates over fiduciary and best-interest regulations, Brad has testified before various congressional committees more than a dozen times. He provides clients with analysis, commentary, and strategic and legal advice on significant updates and assists them in offering comments on proposed regulations.

He also helps clients develop products and compliance systems that meet the requirements for qualified retirement plans and IRAs, as well as fiduciary training programs for plan officials. Brad assists clients in requesting prohibited transaction exemptions and advisory opinions for activities related to employee benefits plans. Brad has a track record of successfully resolving Department of Labor (DOL) and Internal Revenue Service (IRS) investigations and audits for large service providers and plan sponsors, and serves as an expert witness in ERISA litigation.

Brad is a contributor to the firm’s Broker-Dealer Law Blog, which provides practical insights into litigation, regulatory, compliance and fiduciary issues impacting broker-dealers, and is a frequent speaker and commentator in the media, including the Wall Street Journal, Fox Business News and numerous trade press publications.

Government Experience

Brad is the former Assistant Secretary of Labor for Employee Benefits, head of the Employee Benefits Security Administration (EBSA). Prior to serving in that role, he held other senior government positions, including as Deputy Assistant Secretary of Labor for Employee Benefits, senior DOL legislative officer, legislative director for U.S. Rep. Ernest Fletcher, and senior legislative assistant for U.S. Rep. and later Securities and Exchange Commission Chair Christopher Cox.

During his years in government, Brad played a key role in the Pension Protection Act and other significant ERISA retirement and health reforms, and his regulatory and policy decisions have had a fundamental impact on the structure and operation of ERISA plans, including promulgating the final rule establishing Qualified Default Investment Alternatives (QDIA) facilitating automatic enrollment retirement plans.

Services & Industries

  • Benefits and Executive Compensation 
  • ESOPs 
  • Retirement Plans 
  • Mergers and Acquisitions 
  • ERISA Litigation 
  • Investment Management Compliance 
  • Financial Services
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