Opponents and supporters of the Department of Labor’s fiduciary rule were quick to react to Labor filing on Thursday with the Office of Management and Budget to delay by 18 months compliance with the rule’s more onerous prohibited transaction exemptions, with one ERISA attorney characterizing the move as “continued agony.”
“We will be in limbo for another two years, at least,” Steve Saxon, partner at Groom Law Group, told ThinkAdvisor in a Thursday interview. “In a way,” Saxon said, delaying compliance with the rule’s prohibited transaction exemptions from Jan. 1, 2018 to July 1, 2019 is “a double-edged sword.”
While “a lot of us wanted a delay, we needed a delay for those financial institution clients that need to put in a new disclosure regime” to comply with the rule, and “we want DOL to make changes” to the rule, particularly regarding the best-interest contract exemption, it’s also a case of “be careful what you wish for.”
Litigation that’s still in play regarding the rule aside, Saxon continued, “the rule is in effect, and the BIC is currently in effect — we have transition relief, but the DOL won, it’s in effect, and will be unless they [Labor] substantially restructure the rule.”
Saxon argues that non-enforcement relief needs to be extended as well. The IRS and Labor provided such relief for the PTEs until Jan. 1, “the date the transition period ended,” Saxon said. “But now that the transition period has been extended to July 1, 2019, we need the non-enforcement relief to be extended as well.”
The fiduciary regulation “is in full effect,” added Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles. “But the DOL is looking at it to see if they want to make changes.”
Added Reish: “The three exemptions — BICE, 84-24 and Principal Transactions — are in effect, but only the less burdensome transition versions.”
With Labor’s request to OMB, “the full, and more demanding, versions of those exemptions were pushed out to July 1, 2019,” Reish said.
Transition BICE, Reish explained, “requires only ‘adherence to’ the Impartial Conduct Standards,” which took effect on June 9.
“Some of the requirements that were pushed out” under Labor’s request to OMB “are: a contract where the advisor is obligated to comply with BICE, warranties of performance by the advisor (and supervisory entity), disclosures, permission of class action lawsuits, and so on,” Reish said.
In a Wednesday filing with the court in the case being brought against Labor by Thrivent Financial for Lutherans, Labor Secretary Alexander Acosta told the court that Labor submitted to OMB proposed amendments to three exemptions:
- The best-interest contract exemption, which opponents of the rule argued is the contract that would spark a slew of class-action lawsuits;
- Class exemption for principal transactions in certain assets between investment advice fiduciaries and employee benefit plans and IRAs; and
- Prohibited Transaction Exemption 84-24 for certain transactions involving insurance agents and brokers, pension consultants, insurance companies, and investment company principal underwriters.
OMB has 90 days to review Labor’s request to extend the compliance deadline. Once approved, Labor’s proposal will be published in the Federal Register and public comments will be taken, likely for 15 days.