As anticipated, the Department of Labor in early August filed with the Office of Management and Budget to extend by 18 months the January applicability date of its fiduciary rule’s more onerous prohibited transaction exemptions.
Labor Secretary Alexander Acosta announced in an Aug. 9 filing (with the court in the case brought against Labor by Thrivent Financial for Lutherans) that Labor had asked OMB to extend the transition period and delay applicability for the following three exemptions from Jan. 1, 2018, to July 1, 2019:
The best-interest contract exemption, which fiduciary rule opponents say would be the contract that sparks 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, which deals with the treatment of annuities.
Opponents and supporters of DOL’s rule were quick to weigh in on the proposed compliance extension. Steve Saxon, partner at Groom Law Group, the big employee-benefits law firm, characterized Labor’s move as “continued agony.”
“We will be in limbo for another two years, at least,” Saxon said. “In a way,” delaying compliance with the rule’s prohibited transaction exemptions from Jan. 1, 2018, to July 1, 2019, is “a double-edged sword.”
Added Saxon: “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; “we want DOL to make changes” to the rule, particularly regarding the best-interest contract exemption, but it’s also a case of “be careful what you wish for,” he said.
Despite litigation that’s still in play regarding the rule, Saxon explained, “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 [Labor] substantially restructures 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,” he 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,” he added.
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.
Delaying the compliance deadline for the more onerous PTEs will also allow time for a new assistant secretary of Labor’s Employee Benefits Security Administration to be nominated; that was expected to take place during Congress’ August recess, Erin Sweeney, counsel with Miller & Chevalier in Washington, told IA in an Aug. 10 interview.