The U.S. Department of Labor has delayed the effective date of three major sets of DOL fiduciary rule compliance regulations by 18 months, but, actually, the rule is still there, like a dragon stuffed in a trunk.
If you ignore the dragon, and just go about your business as if it was still 2007, fire could come out of the trunk and fry you.
The Employee Benefits Security Administration, the DOL arm in charge of retirement plans, made headlines Monday by posting a preliminary version of a standards applicability delay announcement.
EBSA is getting ready to publish the notice in the Federal Register on Wednesday. Once the announcement is officially published, DOL will push compliance deadlines to July 1, 2019, from Jan. 1, 2018, for three fiduciary rule “prohibited transaction exemptions” (PTEs) or rule add-ons:
The Best Interest Contract Exemption (BICE) (PTE 2016-01), which makes it possible for financial professionals to earn commissions.
Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02), which lets retirement investment advisers receive compensation from investment product providers they recommend.
Amendments to PTE 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies and Investment Company Principal Underwriters, which would put indexed annuities and variable annuities under the BICE rules, rather than the traditional PTE 84-24 rules for insurance products, and impose other requirements on annuity issuers and marketing organizations.
EBSA emphasizes in the announcement that it and its parent department are simply postponing the effective date of those three standards, not the fiduciary rule itself.
Officials note that the new fiduciary rule “impartial conduct standards,” which took effect June 9, are still in effect. Those standards require financial services companies professionals to “give prudent advice that is in retirement investors’ best interest, charge no more than reasonable compensation, and avoid misleading statements.”
Here are five other interesting facts about the new delay, drawn from the text of the announcement.
DOL Headquarters (Photo: Michael A. Scarcella/ALM)
1. At least three EBSA employees are working on the fiduciary rule project.
President Donald Trump recently nominated Preston Rutledge to be the DOL assistant secretary in charge of EBSA, but Rutledge has not yet been confirmed.
Jeanne Klinefelter Wilson, who is serving as an acting assistant secretary at EBSA, signed the standards delay announcement.
EBSA lists Brian Shiker and Susan Wilker, staff members at EBSA’s Office of Exemption Determinations, as standards delay contact people.
2. EBSA officials paid close attention to some insurance community commenters.
EBSA officials note that they received about 200,000 comment letters and petition letters during a public comment period on compliance deadline timing last spring. About 15,000 commenters supported a delay, and about 178,000 commenters opposed a delay, officials say.
Officials refer directly to comment letters from the following life insurance companies and organizations: the American Council of Life Insurers; the Association for Advanced Life Underwriting; AXA US; the Committee of Annuity Issuers; Great-West Financial; Groom Law Group, on behalf of Annuity and Insurance Company Clients; Lincoln Financial Group; Massachusetts Mutual Life Insurance Company; Northwestern Mutual Life Insurance Company; Pacific Life; Primerica; the Spark Institute; Standard Life Insurance Company; Teachers Insurance and Annuity Association of America; and Western & Southern Financial Group.
EBSA officials also refer to letters from a number of consumer organizations, including AARP, Better Markets, Consumer Action and the Consumer Federation of America. Officials cite the Consumer Federation of America more often than they cite the other consumer groups.
3. EBSA officials chose the new July 1, 2019, effective date for the fiduciary rule compliance regulations for a reason.
Officials say that they think they might change the current disclosure rules and procedures, and they did not want financial services companies to have to struggle to implement with those requirements in time to meet a Jan. 1, 2018, compliance deadline.
“As compared to a shorter delay with the possibility of consecutive additional delays, if needed, the 18-month delay provides more certainty for affected stakeholders because it sets a firm date for full compliance, which allows for proper planning and reliance,” officials write.
4. EBSA officials are thinking about the relationship between financial services industry revenue and “social costs.”
EBSA officials note that they had to weigh the possible social costs of delaying standards compliance as well as the possible benefits.
Investors could lose some money, but other costs “will reflect transfers from investors to the financial industry, which, while undesirable, are not social costs per se,” officials write.
This appears to mean that the officials see commissions and other payments to financial services companies as “undesirable” but not as social costs.
5. EBSA officials have some thoughts about what the revised fiduciary rule compliance practices and standards might look like.
Officials assume in the delay announcement that fiduciary rule compliance standards will continue to exist, and will continue to promote the goals of the fiduciary rule, but that the new standards will be more efficient.
Officials say they are hoping to develop a “regulatory framework that could promote market efficiency and transparency, while reducing the burden to the financial sector and associated consumer costs.”
Officials say they also want to give companies more time to overcome fiduciary rule compliance logistical obstacles. Companies can, for example, use the extra time to develop “clean share classes” and other new products and practices designed for the retirement market, officials say.
— Read Annuity Rules Should Apply to Investment-Type Life Products: Consumer Reps on ThinkAdvisor.