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An Update on the DOL’s Fiduciary Rule

The DOL’s much anticipated (or maligned depending on the audience) Fiduciary Rule expands the definition of what constitutes investment advice under ERISA and thereby increases the number and types of retirement plan service providers that are considered ERISA fiduciaries (see our prior coverage of the Fiduciary Rule here and here).  It also imposes stringent compliance and disclosure requirements in order for those service providers to avoid breaching their ERISA fiduciary duties.

Reaction to the Fiduciary Rule has been mixed, and many hoped that the new DOL leadership would repeal the Rule.   That did not occur, and the Rule went into effect on June 9, 2017.  However, there is a phased implementation period for compliance with new prohibited transaction exemptions (e.g., Best Interest Contract Exemption; Principal Transactions Exemption).  During that phase-in period (which expires on January 1, 2018), service providers must only comply with more limited impartial conduct standards in order to take advantage of the exemptions. This means that from June 9 until January 1, service providers that wish to take advantage of the exemptions will generally need to provide advice that meets the best interests of the investor (without regard to the adviser’s financial or other interests), charge only reasonable compensation (as described in the rules under ERISA 408(b)(2)), and avoid making materially misleading statements. The prohibited transaction exemptions allow service providers to receive compensation for certain investment advice that they would otherwise be prohibited from receiving under ERISA’s prohibited transaction rules.

The DOL previously noted that it would continue to review the Fiduciary Rule and seek public comments on potential changes (see here for further information).  Consequently, on July 6, 2017, the DOL published a Request for Information seeking public input on several aspects of the Fiduciary Rule, including the following:

  • Whether the applicability date (currently January 1, 2018) for certain prohibited transaction exemptions, such as the Best Interest Contract Exemption, should be delayed.

  • Whether the Principal Transactions Exemption can be revised to better serve investors and provide greater market flexibility.

  • Whether certain requirements related to service provider contracts should be eliminated or changed.

  • Whether service provider disclosure requirements can be simplified.

  • Whether recommendations to make or contribute to a retirement plan should be expressly excluded from the Rule’s definition of investment advice.

  • Whether there should be an amendment to the Rule (or streamlined exemption) for certain investment transactions involving bank deposit products and Health Savings Accounts.

  • Whether the exclusion from the Rule for certain arms-length transactions with independent plan fiduciaries that have financial expertise should be expanded or changed (including whether additional relief should be provided through a prohibited transaction exemption).

  • Whether a streamlined exemption or other change to the Rule could be developed for investment advisers that comply with or are subject to updated standards of conduct that may be adopted by the SEC or other regulators.

Comments on delaying the applicability date for prohibited transaction exemptions are due on July 21, 2017, and all other comments are due on August 7, 2017.

Jackson Lewis P.C. © 2022National Law Review, Volume VII, Number 188
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About this Author

Associate

Joshua Rafsky is an Associate in the Chicago, Illinois, office of Jackson Lewis P.C. His practice focuses on various aspects of employee benefits law and executive compensation, including ERISA and the Internal Revenue Code.

Mr. Rafsky has extensive experience in the design, implementation and compliance of qualified retirement plans. He also has experience with health and welfare plans, executive compensation, and the benefits issues present in mergers and acquisitions. 

Prior to...

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