DOL Announces Enforcement Policy Changes After End of Fiduciary Rule

The 5th U.S. Circuit Court of Appeals has vacated the entire Department of Labor (DOL) fiduciary rule.

The DOL says, in response to this, it has issued Field Assistance Bulletin (FAB) 2018-02 announcing a temporary enforcement policy related to the DOL’s rule defining who is a “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (IRC), and the associated prohibited transaction exemptions, including the Best Interest Contract Exemption (BIC Exemption), the Class Exemption for Principal Transactions In Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Principal Transactions Exemption), and certain amended prohibited transaction exemptions (collectively PTEs).

The DOL says it understands that financial institutions, advisers, and retirement investors may have questions regarding the investment advice fiduciary definition and related exemptive relief following the court’s order. It intends to provide appropriate guidance in the future. At this point, however, the DOL is aware that some financial institutions may be uncertain as to the breadth of the prohibited transaction exemptions that remain available for investment advice fiduciaries following the court’s order. The uncertainty about fiduciary obligations and the scope of exemptive relief could disrupt existing investment advice arrangements to the detriment of retirement plans, retirement investors, and financial institutions. Further, some financial institutions have devoted significant resources to comply with the BIC Exemption and the Principal Transactions Exemption and may prefer to continue to rely upon the new compliance structures.

Based upon these concerns, the DOL has concluded that financial institutions should be permitted to continue to rely upon the temporary enforcement policy, pending its issuance of additional guidance. The DOL says it is convinced that this temporary enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners.

So, for the period from June 9, 2017, until after regulations or exemptions or other administrative guidance has been issued, the agency 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 in the BIC Exemption and Principal Transactions Exemption, or treat such fiduciaries as violating the applicable prohibited transaction rules. Investment advice fiduciaries may also choose to rely upon other available exemptions to the extent applicable after the 5th Circuit’s decision, but the DOL will not treat an adviser’s failure to rely upon such other exemptions as resulting in a violation of the prohibited transaction rules if the adviser meets the terms of this enforcement policy.

The agency says it is evaluating the need for other temporary or permanent prohibited transaction relief for investment advice fiduciaries, including possible prospective and retroactive prohibited transaction relief. The DOL will consider any applications for additional relief.