DOL Issues Temporary Enforcement Policy on Fiduciary Rule

Field Assistance Bulletin sets out policy if Labor fails to delay rule’s applicability date before April 10

Labor Department headquarters in Washington. Labor Department headquarters in Washington.

The Department of Labor’s Employee Benefits Security Administration issued a temporary enforcement policy on Friday regarding its fiduciary rule.

In its Field Assistance Bulletin 2017-01, EBSA states that “although the department intends to issue a decision on the March 2 proposal in advance of the April 10 applicability date, financial services institutions have expressed concern about investor confusion and other marketplace disruption based on uncertainty about whether a final rule implementing any delay will be published before April 10, whether there may be a ‘gap’ period during which the fiduciary duty rule becomes applicable before a delay is published after April 10, or whether the department may decide either before or after April 10 not to issue a delay based on its evaluation of the public comments.”

EBSA states that while Labor believes it will issue a decision on the March 2 proposal before the April 10 applicability date, given concerns raised during the 15-day comment period regarding Labor’s proposed rule to extend for 60 days the applicability date of its fiduciary rule, Labor has determined that “temporary enforcement relief is appropriate to protect against investor confusion and related marketplace disruptions attributable to uncertainty regarding the timing of the department’s decision on whether to delay the applicability date of the fiduciary duty rule and related [prohibited transaction exemptions].”

While Labor expects the final regulation delaying the applicability date to be effective before April 10, if Labor fails to meet that deadline, it plans to help fiduciary advisors avoid problems because of the delay. 

"We don't think it [the bulletin] signals that there will not be a delay," said Steve Saxon, chairman of Groom Law Group. "There needs to be a delay and I think there will be a delay."

EBSA noted in the bulletin that “many financial services firms and advisors are concerned that, if the Department decides not to issue a delay, there may not be sufficient time to provide retirement investors before the April 10 applicability date with disclosures or other documents intended to comply with the transition period relief in the [best interest contract] exemption, the independent fiduciary exception in the rule, or other disclosure provisions of the rule or the PTEs,” EBSA said.  

Moreover, EBSA continued, “we understand that in order to comply with the BIC exemption in the unlikely event of a ‘gap’ period or if the department decides not to issue a delay, some financial services firms and advisors are considering distributing communications to existing retirement investor clients and potential plan and IRA customers that, among other things, include language regarding an uncertain applicability date and conditional acknowledgements of fiduciary status, i.e., that the firm will be a fiduciary but only if the rule becomes applicable.”

Because of these transitional and other concerns, the Department said that it is adopting the following temporary enforcement policy:

  1. In the event the department issues a final rule after April 10 implementing a delay in the applicability date of the fiduciary duty rule and related PTEs, the department will not initiate an enforcement action because an advisor or financial institution did not satisfy conditions of the rule or the PTEs during the “gap” period in which the rule becomes applicable before a delay is implemented, including a failure to provide retirement investors with disclosures or other documents intended to comply with provisions of the rule or the related PTEs.
  2. In the event the department decides not to issue a delay in the fiduciary duty rule and related PTEs, the department will not initiate an enforcement action because an advisor or financial institution, as of the April 10 applicability date of the rule, failed to satisfy conditions of the rule or the PTEs provided that the advisor or financial institution satisfies the applicable conditions of the rule or PTEs, including sending out required disclosures or other documents to retirement investors, within a reasonable period after the publication of a decision not to delay the April 10 applicability date. 

 --- Check out Quick Action on DOL Fiduciary Rule Unlikely With Acosta Confirmation on ThinkAdvisor.

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