On January 19, 2017, the U.S. Department of Labor (“DOL”) published in the Federal Register the Proposed Best Interest Contract Exemption for Insurance Intermediaries. The proposed exemption generally permits insurance intermediaries, including organizations commonly referred to as independent marketing organizations (“IMOs”), to be treated as Financial Institutions for purposes of selling fixed annuities (including fixed rate annuities and fixed indexed annuities), subject to certain conditions.

This exemption is similar to Prohibited Transaction Exemption 2016-1 (the Best Interest Contract Exemption a/k/a the BIC exemption), which was published April 8, 2016, but includes additional conditions and limitations specific to insurance intermediaries and annuity products.

Written comments and requests for a public hearing on the proposed exemption must be submitted to the DOL by February 18, 2017, which is 30 days from the date of publication. The proposal includes transition relief for the period from April 10, 2017 through August 15, 2018, during which time fewer conditions would apply. The effective date of this transition relief indicates that the DOL expects to finalize this exemption by April 10, 2017. However, it is unclear what effect (if any) the new administration will have on the proposal, or how long it will take the DOL to review comments and finalize the exemption.

For a comparison of the Best Interest Contract Exemption and the Proposed Best Interest Contract Exemption for Insurance Intermediaries, please see here. If you have any questions about complying with either BIC exemption or the DOL’s fiduciary rules in general, please contact one of the authors or your Reed Smith attorney.

Client Alert 2017-026