Sorting Out The Fiduciary Rule ‘Curveball’

The 20th “Inside the Beltway” regulatory update session hosted by Drinker Biddle and Reath in partnership with Natixis Global Asset Management brought together more than 1,000 retirement industry professionals, all of them wondering exactly what is in store for the future of the Department of Labor (DOL) fiduciary rule.

Fred Reish, chair of the Drinker Biddle and Reath financial services ERISA team and chair of the retirement income team, called the attendance “remarkable.”

“It shows just how unclear a lot of this stuff still is,” he noted, “and just how much of a demand for insight there is.”

As Reish and colleague Brad Campbell, partner in the firm’s Employee Benefits and Executive Compensation Practice Group and former Assistant Secretary of Labor, explained, the fiduciary rule is now slated to take effect June 9.

“On that day we will see the fiduciary rule become applicable,” Campbell warns. “Not one comma has changed within the rule itself, and so everything we have warned about in the years of debate leading up to this point, all the examples of circumstances that would amount to a broker triggering fiduciary advice and fiduciary breaches for the first time, becomes applicable on June 9.”

Campbell warned that, while the DOL has signaled it could do another implementation delay prior to June 9, the more likely course is that the fiduciary rule will in fact be implemented. Important to note is that, while the fiduciary rule itself has not been changed, the DOL under Trump’s leadership has issued several new transition exemptions—most notably a new “best-interest contract transition exemption” and a new “transition 84-24 exemption.”

According to Reish and Campbell, together, these new transition exemptions will do a lot in terms of easing some of the compliance burden associated with meeting the fiduciary rule requirements. The new transition 84-24 exemption in particular is expected to help independent insurance agents continue to serve the retirement plan market through commission-based business models, for example, although real challenges remain.

The transition period will run into 2018, Campbell and Reish noted.

“It will be in that transition time period that the Labor Department determines ultimately whether to make changes going forward, and right now it seems like it could still go either way,” Reish said. “June 9 is a very important deadline in that respect, because the DOL has said they are unlikely to issue any more delays. It’s also possible that Congress could theoretically impose another delay before that date, but I wouldn’t hold my breath on that either.”

Regarding how the actual process will unfold around all this, Campbell suggested the new Labor Secretary nominee Alexander Acosta will likely be confirmed this week, “most likely Wednesday or Thursday.” He called this a positive development that should help bring some additional clarity.