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DOL, SEC Fiduciary Rules Likely in Fall

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The Securities and Exchange Commission and the Labor Department will likely release simultaneously in the fall their fiduciary rule proposals, prominent ERISA attorneys say.

Fall “is a reasonable estimate,” said Brad Campbell, former head of Labor’s Employee Benefits Security Administration, who’s now counsel with Drinker Biddle & Reath, during the firm’s recent Inside the Beltway webcast.

“If you assume that they [Labor] needs to complete their changes by July 2019, which is when the deferred provisions of the current exemptions – the most onerous parts” of Labor’s fiduciary rule take effect, fall “really is the deadline for action by DOL.”

In fact, both Labor and the SEC “need to have their new plans in place and moving by that timeframe to avoid further conflict and problems in how their rules work,” Campbell argued.

DOL would need to put out a proposal by the fall detailing “changes it wants to make in order to provide enough time for the comment period, which would be at least 60 days, [and] to then work through the comments and come up with a final rule and publish them by roughly July.”

Fred Reish, partner at Drinker Biddle & Reath in Los Angeles, agreed that he sees Labor acting in “coordination” with the SEC. “As a result, the timing of the releases of new proposals may be the same for each.”

Labor announced last November the official 18-month extension for the start of key provisions of the fiduciary rule, stating that the transition period for the rule’s Best Interest Contract Exemption and the Principal Transactions Exemption, and of the applicability of certain amendments to Prohibited Transaction Exemption 84-24 (PTEs), would move from the previous Jan. 1, 2018, compliance date to July 1, 2019.

With the new head of Labor’s EBSA, Preston Rutledge, now confirmed, revising Labor’s fiduciary rule “can begin in earnest,” Reish said.

The importance of Rutledge “as political appointee and providing political leadership to EBSA cannot be overstated,” Reish said. “Without political leadership, really nothing could proceed in terms of revising the fiduciary regulation and the prohibited transaction exemptions.”

Rutledge can now “provide that political leadership at the granular level.”

Rutledge has “been able to hit the ground running by virtue of his experience in employee benefits,” Campbell added. “He’s familiar with the issue.”

That’s being said, Rutledge has “a lot he needs to deal with.”

In 2017, the talk surrounding Labor’s fiduciary rule was “about timing — when would the rule go into effect, which parts?” Campbell continued. In 2018, it’s “going to be about sorting through the actual content, and that is going to take them [DOL] a while to do because there’s just a lot there that we’ve not really had discussions with the department on and wouldn’t have been really until now — with political leadership — to start engaging on those issues.”

While the rule became law under the Obama administration, “this administration is ultimately going to make the policy decisions that go into what the new rule, or the new reformed rule, will look like. So some of these conversations have to be had anew,” Campbell added.

Indeed, with a full commission at the SEC, “better coordination internally and better coordination with DOL” will ensue, added James Lundy, a partner in Drinker Biddle’s SEC & Regulatory Enforcement Team. Any SEC fiduciary rule will “be crafted in such a way to attempt to avoid any challenge by any outside party vis-a-vis a judicial proceeding that would overrule the rule.”

As to new fiduciary rules issued by the states, Campbell said that “there’s a question about how some of these state statutes might be pre-empted. In particular, there’s some decent pre-emption in the securities area. So there’s a question about how much states could do in securities regulation that might be preempted by federal law.”

In 2018, Campbell said that he’ll be watching how developments and outcomes “in the fiduciary regulatory fights at the SEC, at DOL and the resolution of court cases challenging the DOL rule as being invalid” will “encourage states to take action or discourage them.”