Temporary Enforcement Policy Applies After Court Invalidates DOL Fiduciary Guidance

The Department of Labor’s Employee Benefits Security Administration (EBSA) has issued Field Assistance Bulletin (FAB) 2018-02, which outlines a temporary enforcement policy that follows the agency’s investment fiduciary final regulations and exemptions package being vacated by the U.S. Fifth Circuit Court of Appeals.

Fifth Circuit Court Action

In March of 2018 the Fifth Circuit Court ruled that the DOL’s fiduciary guidance had exceeded the agency’s authority under the Employee Retirement Income Security Act (ERISA). The Court’s ruling to vacate the regulations and exemptions essentially nullified the guidance in its entirety, nationwide.

When it appeared the DOL would not appeal the ruling by an April 30 deadline, the American Association of Retired Persons (AARP) and the attorneys general of California, New York, and Oregon attempted to intervene and appeal on behalf of those they believed might be harmed by loss of the DOL guidance. They were denied that option by the Fifth Circuit Court. The DOL still has the right to appeal the decision to the U.S Supreme Court, but it is unlikely that FAB 2018-02 would have been issued had that course of action been planned.

DOL Status Before Fifth Circuit Court Action

Before the Fifth Circuit Court vacated the guidance, those who provide investment advisory services to retirement investors had been under relaxed standards for complying with the DOL fiduciary advice rules. Those standards were to be in effect for the period June 9, 2017, through July 1, 2019. During that period, firms and representatives were to observe what are known as “impartial conduct standards,” which required the following.

  • Receive only reasonable compensation
  • Make no misleading statements
  • Act in the best interest of the retirement investor

FAB 2018-02

The temporary enforcement policy now outlined in FAB 2018-02 essentially continues the application of the above standards until further notice, and applies to all elements of the DOL’s fiduciary guidance. This includes the DOL final regulations, the Best Interest Contract (BIC) exemption, and several other related prohibited transaction exemptions (PTEs).

As stated in FAB 2018-02, “…for the period from June 9, 2017, until after regulations or exemptions or other administrative guidance has been issued, the Department will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted…” by the DOL guidance that was vacated by the Fifth Circuit Court.

The Treasury Department and the IRS have also confirmed that no action will be taken to assess civil penalties for prohibited transactions for fiduciary investment advice covered by the DOL relief in FAB 2018-02.

FAB 2018-02 further states that investment advice fiduciaries may choose to rely on other, prior prohibited transaction exemptions that have been issued by the DOL for fiduciary investment advice they provide, but this is not considered necessary if the advisor or advisory firm meets the conditions of the impartial conduct standards.