Retirement investment providers—and the retirement industry in general—have been anxiously awaiting June 9, 2017, the date for compliance with Department of Labor (DOL) investment advice fiduciary regulations and accompanying prohibited transaction exemptions (PTEs). On May 23, 2017, the DOL addressed questions about the deadline, though perhaps not in the manner many expected or hoped. In an Op Ed article written by Secretary of Labor Alexander Acosta and in Field Assistance Bulletin 2017-02, the DOL described both its decision not to delay compliance requirements and its relaxed enforcement stance during the transition period, June 9, 2017, through January 1, 2018. The DOL also issued a 15-item frequently-asked-question (FAQ) document, providing additional clarification about the regulation and related PTEs.
Before this latest DOL action, retirement investment advisors and the retirement industry were already operating under a 60-day extension. That reprieve was granted April 4, 2017, just six days before an impending April 10, 2017, “applicability” date. The 60-day extension delayed the applicability date to June 9, 2017. During this period—and even before—many interested parties commented and lobbied for another, lengthier delay, or even outright suspension of the new fiduciary guidance. These expectations were not met with the Op Ed article, FAB 2017-02, or the new DOL FAQs. FAB 2017-02 does, however, leave the door ajar concerning the possibility of additional, future relief by stating that if circumstances require it, the DOL will consider taking additional steps as needed.
New Labor Secretary Weighs In
Secretary of Labor Alexander Acosta provided insight into the decision to maintain the compliance schedule. In his article he stated that the DOL will seek additional public input on the entire fiduciary rule in light of the Trump administration’s deregulatory goals, but found no legal basis to change the June 9 applicability date while additional input is sought. As a result, the legal process, complicated as it is, must be followed and will take time. In the end, however, it seems possible that the DOL may find that an additional extension to the phased implementation approach is necessary and changes to the regulation and/or PTEs is warranted.
DOL Enforcement Intentions; IRS Alignment
During the transition period of June 9, 2017, through January 1, 2018, the DOL will not enforce the most complex requirements of the PTEs (e.g., contract and disclosure requirements) for those who provide conflicted advice under the final regulations. Instead, those who provide compensated investment advice need only comply with the “impartial conduct standards.” These standards require that those providing investment advice
- make no misleading statements,
- receive only reasonable compensation, and
- give advice in the client’s best interest.
But without explicitly saying so, FAB 2017-02 intimates that the DOL will be generous in applying even these compliance standards during the period, stating that the agency will not punish fiduciaries who are working diligently and in good faith to comply with the fiduciary rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary rule and exemptions.
In addition, the DOL stated it has worked with the Treasury Department and that the IRS, similarly, will not assess excise taxes for prohibited transactions under the final DOL regulations and exemptions in cases where the DOL’s temporary enforcement policy applies.
Highlights of the FAQs
Accompanying FAB 2017-02 was DOL guidance entitled Conflict of Interest FAQs (Transition Period), intended to provide the industry with additional clarification of the rules during the transition period from June 9, 2017, through January 1, 2018. The FAQs include several items of importance, including
- clarification that compliance with the regulations and impartial conduct standards is required by the end of the day (11:59 p.m.), local time, June 9, 2017,rather than the beginning of the day;
- acknowledgement by the DOL that it will issue a request-for-information to assist it in analyzing the regulation and accompanying PTEs in light of President Trump’s previous deregulatory directive;
- clarification of what constitutes education vs. a recommendation; and
- confirmation that a negative consent procedure is acceptable for those using the independent fiduciary exception to providing recommendations.
Ascensus will provide additional details regarding the FAQs in a future edition of the Washington Pulse.
Except for the FAQs, if this all sounds familiar, you haven’t missed anything. With its latest guidance, the DOL has, in large part, merely confirmed what it said in its April 4, 2017 guidance: the regulations and the impartial conduct standards of the PTEs apply from June 9, 2017, to January 1, 2018, while the government provides compliance assistance. On January 1, 2018, absent new DOL guidance, full compliance with the PTEs will be required.
In the meantime, the DOL will continue to consider feedback to assist it in complying with President Trump’s directive. After that, it’s anyone’s guess what will happen, but it seems reasonable to conclude that additional changes will be coming. Stay tuned—Ascensus will provide additional information as it becomes available.