The American Council of Life Insurers is celebrating the official delay of the compliance deadline for major extensions of the U.S. Department of Labor fiduciary rule standards, and preparing for a tough new round of negotiations.
Dirk Kempthorne, the group’s president, put out a statement praising DOL officials for deciding to put off enforcement of the add-on standards for 18 months.
Kempthorne also praised department officials for talking about plans to work with members of Congress, state insurance regulators and other policymakers on revising the regulation and the related add-on standards, or “prohibited transaction exemptions” (PTEs).
“We agree with the department’s desire to promote coordination among regulatory stakeholders,” Kempthorne said.
But Kempthorne seems to assume in the statement that policymakers will work to develop “reasonable and appropriately tailored rules,” rather than throwing out the current regulations altogether.
The final, revised regulations should “require all sales professionals to act in the best interest of their customers,” Kempthorne said. “A collaborative and harmonized approach would ensure all consumers receive retirement savings information and related financial guidance from financial professionals acting in their best interest, regardless of the products they purchase.”
Policymakers should eliminate any bias in the revised regulations against annuities, or against commission-based compensation arrangement,” Kempthorne said.
Kempthorne argued that keeping the annuity and compensation provisions now in the regulations would block consumer access to the only product that can guarantee access to a lifetime income.
The DOL Fiduciary Rule
Officials at the Employee Benefits Security Administration, the arm of the DOL that oversees employer-sponsored health plans and retirement plans, developed the fiduciary rule, and the fiduciary rule PTEs, during the administration of former President Barack Obama, in response to complaints that some retirement product sellers were saddling retirement savers with flawed, overpriced products.
Fee-based advisors and their supporters have argued that commission-based compensation clouds financial professionals’ judgment.
EBSA ended up developing a main regulation, and PTEs, that favor independent, fee-based advisors; put tight restrictions on distributors of indexed annuities; and help retirement savers go to court to resolve disputes with retirement advisors.
Life insurers and annuity issuers fought the regulations hard, and rule watchers expected the administration of President Donald Trump to work as quickly as possible to kill, delay or change the regulations.
Labor Secretary Alex Acosta (Photo: Senate)
Trump asked the Department of Labor to review the impact of the fiduciary rule, and to take steps to address any harmful impact, in a presidential memorandum issued in February.
Impartial Conduct Standards
Officially, DOL officials are extending a transition period for compliance with fiduciary rule PTEs by 18 months, and delaying the effective date of the PTEs.
The announcement affects these three PTEs:
Best Interest Contract Exemption (PTE 2016-01).
Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02).
Amendments to the Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24).
A preview copy of the PTE transition period extension is available here.
The DOL is preparing to publish the announcement in the Federal Register on Wednesday.
Labor Secretary Alex Acosta has said that the DOL wants to learn more about the impact of the fiduciary rule and the PTEs, but he has emphasized that the DOL believes that the idea at the heart of the rule, that financial professionals should meet “impartial conduct standards” when advising retirement savers, is still in effect, and that the DOL will use existing compliance mechanisms to respond to willful violations of those standards.
DOL officials continue to drive home that point in the new transition period extension announcement.
During the extended transition period, “financial institutions and advisers must continue to give prudent advice that is in retirement investors’ best interest, charge no more than reasonable compensation, and avoid misleading statements,” officials write in the announcement.
Those concepts are deeply rooted in the Employee Retirement Income Security Act of 1974, the law that governs retirement savings arrangements, officials say.
Officials also note that the effects of the DOL fiduciary rule and PTE reviews are uncertain.
“Whether, and to what extent, there will be changes to the fiduciary rule and PTEs as a result of this reexamination is unknown until its completion,” officials write.
The department hopes to have a clearer sense of the range of alternatives after it completes a careful review of the responses to an earlier request for comments from interested parties, officials write.
—Read Advisors Must Act in Customers’ Best Interest: DOL Secretary on ThinkAdvisor.