In somewhat of a surprise, the Department of Labor (“DOL”) allowed the Trump-era fiduciary standard rule to roll out as scheduled on February 16.
We analyzed in SAA 2020-30 (Aug. 12) the thousands of comments received on the DOL’s proposed fiduciary standard rule for those offering retirement investment advice – Improving Investment Advice for Workers & Retirees – that was published in the Federal Register on July 7 (85 FR 40834; Vol. 85, No. 130, P. 40834). The exemption, which is harmonized with the SEC’s Regulation Best Interest, allows Investment Advice Fiduciaries to engage in certain prohibited transactions that would otherwise be disallowed under ERISA and the Internal Revenue Code (see our analysis in SAA 2020-25 (Jul. 8)). We later reported in SAA 2021-01 (Jan. 14) that the DOL on December 15 released the massive Final Rule, which was to become effective 60 days after its December 18 Federal Register publication (85 FR 92798Vol. 85, No. 244. P. 82798), or on February 16, 2021.
Doubts About Scheduled Effectiveness …
In our most recent coverage in SAA 2021-05 (Feb. 11), we queried whether this would actually happen. As we had said before, the Final Rule’s long-term fate was unclear, since it was to become effective after Inauguration Day. We had noted that House Financial Services Committee Chairwoman Maxine Waters (D-CA) last December wrote to then President-elect Biden urging that Reg BI and Form CRS be rescinded. And there was significant media and interest group speculation that the DOL would at least pause implementation before February 16.
… Were Misplaced
Contrary to our expectations, though, we can now report that the rule went into effect as scheduled. A February 12 Press Release states: “The U.S. Department of Labor’s Employee Benefits Security Administration has confirmed that ‘Improving Investment Advice for Worker & Retirees,’ an exemption for investment advice fiduciaries, will go into effect as scheduled on Feb. 16, 2021. In the coming days, the agency will publish related guidance for retirement investors, employee benefit plans and investment advice providers.” Why this move? Says Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Ali Khawar: “This exemption allows for important investor protections, including a stringent ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA-protected retirement accounts. We recognize that investment advice providers have been preparing for the exemption, and this step will allow them to implement important system changes. That said, we will continue our stakeholder outreach to determine how we might improve this exemption, the rule defining who is an investment advice fiduciary, and related exemptions to build on this approach.” In the meantime, the temporary enforcement policy articulated in Field Assistance Bulletin 2018-02 will remain in place until December 20, 2021.
(ed: *We are pleasantly surprised. **Your publisher and Editor-in-Chief discussed the fate of the DOL rule and its cousin – Reg BI – in a February 9 feature article, The Elections are (Finally!) Over: What’s in Store for the Arbitration and the Financial Services World, saying: “My take is that the Democrats believe neither rule goes far enough – including allowing PDAAs – and that Congress and the regulators need to go back to the drawing board. My recommendation is not to toss these regulations, but to build on them” (footnotes omitted). Looks like the Biden DOL feels the same way. ***Keep in mind that Congress has authority under the Congressional Review Act, 5 USC §§ 801 et seq., to nullify legislatively any regulation within 60 legislative/session days of its publication.)
(CLOSE THIS WINDOW TO RETURN TO THE NEWSLETTER)
