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DOL Suspends Class-Action Rule Enforcement

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The U.S. Department of Labor has taken official action to suspend enforcement of a DOL arbitration limitation requirement that could keep retirement savers from joining in class-action lawsuits against financial services advisors and financial services companies.

The DOL announced the move Wednesday in a new batch of guidance, Field Assistance Bulletin Number 2017-03.

The bulletin appeared on the DOL website as the department began a 15-day comment period on a move to formally postpone enforcement of some DOL fiduciary rule provisions for 18 months.

(Related: DOL Set for 15-Day Comment Period on Fiduciary Rule Delay)  

The field bulletin applies to a new requirement for retirement fiduciaries that was previously set to take effect Jan. 1, 2018.

The requirement would apply to retirement fiduciaries that want to use the Best Interest Contract Exemption and the Principal Transactions Exemption.

The Employee Benefits Security Administration, the DOL division in charge of the fiduciary rule effort, may take additional steps, such as providing prohibited transaction relief, if that turns out to be necessary to keep the arbitration limitation requirement from taking effect, officials say.

Under guidelines developed during the administration of former President Barack Obama, fiduciaries using those exemptions could not use arbitration agreements that require retirement investors to waive their right to bring or participate in class-action lawsuits.

Consumer groups have argued that protecting consumers’ ability to participate in class-action lawsuits gives retirement savers hurt by bad advice or bad products a good way to get compensation.

Advisors and financial services companies, including life insurance agents and life insurance companies, have argued that the arbitration limitation requirement could expose them to the threat of unlimited, unpredictable litigation started by plaintiffs who have the benefit of hindsight.

The DOL has already asked in a brief filed with the 5th U.S. Circuit Court of Appeals that the courts vacate the arbitration limitation requirement. The DOL has argued that the limitation conflicts with the Federal Arbitration Act.

DOL officials say in the new bulletin that Internal Revenue Service officials will also refrain from enforcing the arbitration limitation requirement.

IRS officials put out a DOL fiduciary rule non-enforcement notice in March. The March IRS notice stated that the IRS would refrain from enforcing excise tax requirements related to the DOL fiduciary rule when the DOL suspended enforcement of fiduciary rule requirements either through the batches of guidance coming out around that time or through “other subsequent related enforcement guidance,” according to DOL officials.

The new field bulletin constitutes “other subsequent related enforcement guidance” for purposes of the notice the IRS issued in March, according to DOL officials.