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Capitol News | PLANADVISER November/December 2016

Capitol News

An adviser eye on Washington

By PA editors@assetinternational.com | November/December 2016
Art by Kyle Stecker

DOL Fiduciary Rule Posts Key Court Victory
The U.S. District Court for the District of Columbia has rejected a lawsuit filed by the National Association for Fixed Annuities (NAFA) that had asked the court for “declaratory, injunctive and other appropriate relief” that would have halted the implementation of the Department of Labor (DOL)’s new fiduciary rule.

The suit sought relief under the Regulatory Flexibility Act (RFA), suggesting that the DOL conflict of interest rule, with its sweeping advice reforms, moves far too quickly to install overly broad restrictions to currently accepted business practices. “Specifically, in promulgating the Rule and the Exemptions, the Department exceeded the authority granted to it by Congress under ERISA, the [Internal Revenue] Code [IRC], and Reorganization Plan No. 4 of 1978,” the suit contended. “In addition, the Rule and the Exemptions are arbitrary and capricious, not in accordance with law, impermissibly vague, and otherwise promulgated in violation of federal law.”

A variety of arguments were leveled in the NAFA complaint along these lines, but clearly they did not prevail, given that the D.C. District Court has flatly opposed NAFA’s dual requests for preliminary injunction and summary judgment. Instead, the court actually granted the DOL’s cross-motion for summary judgment, which argued, naturally, that all tenets of the rulemaking fit squarely within the DOL’s existing authority.

Third Wells Fargo ERISA Stock Drop Complaint Filed
Another participant is suing Wells Fargo and its executives after losing money on company stock following revelations involving unethical sales practices within the organization’s consumer/retail banking divisions.

Like the previous complaints, this one seeks class action status under the Employee Retirement Income Security Act (ERISA) and alleges that the Wells Fargo executives who oversee the company’s retirement plan—and its offering of Wells Fargo stock to employees as an investment option—knew about the sales practice failures well in advance of the public disclosures. Thus, according to the reasoning in the complaint, they should have dropped the company stock as an imprudent investment option—knowing the illegal sales practices would eventually and necessarily be disclosed and thereby correct the inflated stock price.

The text of the complaint lays out by-now familiar allegations that the aggressive sales requirements the company placed on low-level banking professionals directly inspired the opening of millions of unauthorized customer accounts.

DOL Publishes Detailed Fiduciary Rule FAQ
The Department of Labor (DOL) published an in-depth FAQ document based on the input received from the financial services industry and others in response to the April finalization of the new, stricter fiduciary standard to be applied starting next year under the Employee Retirement Income Security Act (ERISA).

“These questions are an important part of the regulatory process, as they allow the department to clarify important parts of the rule,” explains Phyllis Borzi, assistant secretary for the Employee Benefits Security Administration (EBSA) of the DOL, “and to head off misunderstandings that could lead to bad results for retirement savers or financial services professionals.”

Borzi adds that, in the coming months, the DOL will publish additional FAQ to lend clarity to the new rule. The first document answers general questions such as “How will the Labor Department approach implementation of the new rule and exemptions during the period when financial institutions and advisers are coming into compliance?” as well as much more exacting questions about specific circumstances advisory firms will likely face.

IRS Announces 2017 Plan Limitations
The Internal Revenue Service (IRS) announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2017, in Notice 2016-62.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans or the federal government’s Thrift Savings Plan remains unchanged at $18,000. In addition, the catch-up contribution limit for employees ages 50 and older who participate in any of those plans remains unchanged at $6,000.