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Regulation and Compliance > Federal Regulation > DOL

New DOL Fiduciary Rule Pushed to December

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What You Need to Know

  • A new fiduciary rule proposal won't be sent to OMB until December.
  • Labor's plan also will evaluate available prohibited transaction class exemptions and propose amendments or new exemptions.
  • The Senate has yet to confirm Lisa Gomez to head EBSA.

The Labor Department has pushed the reveal of its new fiduciary rule to December, according to its just-released regulatory flexibility agenda.

That’s when Labor will send its rule proposal to the Office of Management and Budget for review. Such a review can take up to 90 days.

Dates set out in reg flex agendas are traditionally placeholders, and may not reflect the actual date that a fiduciary plan would be released.

“I interpret that [regulatory agenda] as meaning in the future, but still on the agenda,” said ERISA attorney Fred Reish, partner at Faegre Drinker in Los Angeles.

Labor “needs to move quickly to propose updates to its fiduciary rule,” said Micah Hauptman, director of investor protection at Consumer Federation of America, in a Wednesday email to ThinkAdvisor. “This administration may be running out of time and retirement savers need protections against advisory conflicts of interest more than ever.”

Steve Saxon, principal at Groom Law Group in Washington, said in another email to ThinkAdvisor on Wednesday that he’s “not surprised at all” with Labor’s reg flex timing.

The agenda “is consistent with everything we had been hearing from DOL for a long time. Also, not surprised that they are waiting until after the mid-terms” to release a rule.

Saxon added that “it is important to note that DOL will revise PTE 84-24 to make it consistent with PTE 2020-02. Or perhaps revoke it altogether.”

PTE 84-24 applies to insurance sales (life insurance and variable, fixed indexed and fixed rate annuities) and to receipt of commissions.

Phyllis Borzi, former head of Labor’s Employee Benefits Security Administration during the Obama administration, added in another email that she’s also “not surprised” by Labor’s reg agenda, as she “had heard they [Labor] were trying to work though a couple of thorny technical issues so they were behind schedule.”

Added Borzi: “I know from my own time at EBSA, other priorities imposed on the agency often slow their progress.  The fundamental problem is one of resources:  a handful of key policy/legal personnel are integral to everything that comes out and they are constantly being pulled off what they are working on to respond to [Capitol] Hill, front office and [White House] requests.”

According to Labor’s spring regulatory agenda, released Tuesday, the rulemaking would amend the regulatory definition of the term fiduciary “to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries” within the meaning of section 3(21) of the Employee Retirement Income Security Act and section 4975(e)(3) of the Internal Revenue Code.

The amendment, the rule states, “would take into account practices of investment advisers, and the expectations of plan officials and participants, and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest.”

In conjunction with the fiduciary rule, Labor’s regulatory agenda states that its Employee Benefits Security Administration (EBSA), which writes retirement plan rules, “also will evaluate available prohibited transaction class exemptions and propose amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors.”

Ali Khawar, acting assistant secretary for EBSA, said on May 19 that Labor will factor in other agency rulemakings, like the Securities and Exchange Commission’s Regulation Best Interest, as it crafts its fiduciary rule.

The new fiduciary advice exemption issued by the Trump administration, PTE 2020-02, which went into effect on Feb. 16 “is a very significant development in the ERISA space,” Khawar said.

The exemption, he continued, “is not mandatory, not everyone has to implement 2020-02 as part of their business model; that’s one of the other things we’re thinking about: With the regulatory changes at [Labor] and other regulators, how do we navigate it?”

Starting on July 1, advisors and firms under Labor’s new fiduciary prohibited transaction exemption 2020-02 “will need to provide to the participant, in writing, the specific reasons why a rollover is in [their] best interest,” according to ERISA attorney Fred Reish, partner at Faegre Drinker.

As it crafts its fiduciary rule, Khawar said that Labor continues to think through: “What do we need to do and how can we make sure that it’s [the fiduciary rule] done in a way that doesn’t disadvantage the people that made the decision to implement 2020-02?”

President Joe Biden’s nominee to head EBSA, Lisa Gomez, will need a second Senate vote.

The full Senate voted 49-51 on June 8 against Gomez to lead EBSA.

Senate Majority Leader Chuck Schumer, D-Mass., voted no, but he entered a motion to reconsider Gomez’s nomination.

Sen. Patty Murray, D-Wash., chairwoman of the Senate Health, Education Labor & Pensions Committee, said in a statement then that the 49-51 result “showed there are enough votes to confirm Gomez to the position, and Majority Leader Schumer’s vote against the nomination will allow him to bring it to the floor again for a successful confirmation vote soon.”