Erin Sweeney of Miller & Chevalier.

Confusion about the Trump administration’s announcement calling for a review of the DOL fiduciary rule less than three months before it’s due to take effect could find some resolution this week.

“We’re expecting to see a very short, simple notice in the Federal Register that will delay the rule most likely by 180 days,” said Erin Sweeney of the Washington, DC-based law firm Miller & Chevalier. Her best guess: a notice published on Tuesday.

In that case the notice would likely occur before a ruling by Dallas federal judge Barbara M.G. Lynn on a pending lawsuit opposing the rule. On Thursday, the judge issued a one-sentence notice to parties to the to the suit, which include the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Financial Services Institute and others, that she intends to rule no later than Feb. 10. That may be one reason the Trump administration issued the memorandum as soon as it did, before its new secretary of labor was confirmed.

The 180-day delay that Sweeney says is most likely is the same timeframe included in a draft version of a White House memorandum that circulated early Friday morning. By the time the final version of the memorandum was released later Friday afternoon, however, there was no mention of a time frame or a directive for the DOL to work with the Justice Department to halt pending litigation over the rule, which was also included in the draft order. 

Also excluded from the final memorandum, but included in the draft, was a specific order for the DOL to analyze prohibited transaction exemptions, which were an integral part of the rule, and to consult with DOJ about whether the fiduciary rule violates the “Administrative Procedure Act or any other applicable statute.” The APA governs the way federal administrative agencies may propose and establish regulations.

Following release of the final memorandum on Friday, acting Labor Secretary Ed Hugler, in a statement, said, “The Department of Labor will now consider its legal options to delay the applicability date as we comply with the president’s memorandum.”

“We’re back to where we were in the beginning,” said Sweeney. 

She expects that after the DOL issues an official notice delaying the rule, there will be a stay of litigation relating to the rule and then a notice from the DOL asking for public comment on the issues that the Trump administration listed in its final memorandum, which directs the DOL to “prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule, that considers:

  • Whether the rule has harmed or is likely to harm investors due to reduced access to certain retirement saving offerings, products, information or related financial advice                                                                                                                                                                                                            
  • Whether the rule has disrupted the retirement advice industry in a way that “may adversely affect investors or retirees”                                                     
  • Whether the rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services

If the DOL concludes that the rule will cause any one of those results or is inconsistent with any priorities indentified in the memorandum — they include empowering Americans to make their own financial decisions and facilitating their ability to save for retirement and build their individual wealth — then the DOL can publish a proposed rule that rescinds the existing one or a revised rule, asking for public comment.

It doesn’t appear on the surface at least that the DOL would have much difficulty justifying either move.

The agency could also issue an interim final rule before six months have passed, which would take effect immediately but also be the subject of public comment, said Sweeney.

A new rule could, for example, modify the current rule so that a Best Interest Contract Excemption would not be required when an advisor recommends that a client recommends that a client roll over money into a 401(k) plan or the rule could be modified to exclude the possibility of class-action suits for alleged violations of the rule, which is included in the current rule.

In the meantime, Sweeney is advising her clients, who are retirement plan fiduciaries and financial service providers, to hold tight until there is more direction from the DOL.

“Don’t commit to anything. Don’t sign anything. If you’re one of those plan fiduciaries that has decided to have an advice module you need to step that back and reach back to the recordkeeper. If you’ve signed any disclosure effective in April (the original effective date of the current fiduciary rule is April 1, 2017), be clear you’re not bound to undertake any of these actions. You don’t want to accidentally roll out a product that turns out not to be compliant.”

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