DOL Confirms Fiduciary Prohibited Transaction Exemption Will Stand, For Now

The U.S. Department of Labor (DOL) confirmed Friday that it will go ahead with the implementation and enforcement of the new fiduciary prohibited transaction exemption (PTE) installed in the final days of the previous administration.

Specifically, the DOL’s Employee Benefits Security Administration (EBSA) has confirmed that “Improving Investment Advice for Workers & Retirees,” as the exemption is formally known, will go into effect as scheduled on February 16. According to the DOL’s announcement, the agency will soon publish related guidance for retirement investors, employee benefit plans and investment advice providers.

“This exemption allows for important investor protections, including a stringent ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA [Employee Retirement Income Security Act]-protected retirement accounts,” says Deputy Assistant Secretary of Labor for the EBSA Ali Khawar. “We recognize that investment advice providers have been preparing for the exemption, and this step will allow them to implement important system changes.”

That said, the EBSA pledges to continue its ongoing stakeholder outreach to determine how it might improve the exemption, as well as the related rule defining who is an investment advice fiduciary. In the meantime, the temporary enforcement policy stated in Field Assistance Bulletin 2018-02 will remain in place until December 20.

This morning’s development brought immediate praise from retirement plan industry groups. In a statement shared with PLANADVISER, the Financial Services Institute (FSI) applauds the DOL for allowing the PTE to move forward, noting that the DOL’s PTE harmonizes its conduct standards with the Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI), which went into effect on June 30.

“We are pleased to hear of this development,” says FSI Executive Vice President and General Counsel David Bellaire. “Allowing this PTE go into effect provides the regulatory clarity and consistency financial services firms and financial advisers need to confidently serve their clients. Together, the DOL PTE and Reg BI increase transparency and investor protection without restricting Main Street Americans’ access to advice.”

The same sentiment was broadcast in a statement from the Insured Retirement Institute (IRI), penned by Jason Berkowitz, the group’s chief legal and regulatory affairs officer, though he does take umbrage at the reinstatement of the five-part fiduciary status test. 

“IRI supports the Labor Department’s decision to allow the exemption to take effect without delay,” Berkowitz says. “This will permit our member companies to continue to provide clients with valuable retirement products and services under robust consumer protections that ensure financial advice professionals act in their clients’ best interest. Our members are prepared to undertake the necessary hard work to implement the new exemption, which will require updating policies and procedures, modifying systems, training and more.”

Berkowitz’s statement continues by voicing frustration with the return to the five-part test for determining fiduciary status.

“We continue to disagree with the expansive interpretation of the five-part test contained in the rule’s preamble,” he says. “This interpretation is inconsistent with the 2018 decision by the U.S. 5th Court of Appeals in U.S. Chamber of Commerce v. U.S. Department of Labor. Further, the rule does not provide a clear and workable path to exemptive relief for independent insurance agents. IRI will continue to work with the Department of Labor to clarify this regulation to ensure that retirement savers have access to their choice of financial advice, products and services that will help them achieve a financially secure and dignified retirement.”

In-depth PLANADVISER coverage about the exemption and related regulatory developments is available here.