On May 22, 2017, the Department of Labor (the “DOL”) announced a temporary enforcement policy in Field Assistance Bulletin No. 2017-02, stating that the DOL will not pursue claims against fiduciaries who are “diligently and in good faith” working toward compliance with the DOL’s final rule defining who is a “fiduciary” under the Employee Retirement Income Security Act (“ERISA”) (the “Fiduciary Rule”) and the related prohibited transaction exemptions (“PTEs”) during the phased implementation period beginning June 9, 2017 and ending December 31, 2017. For more information regarding the delayed implementation of the Fiduciary Rule, please see “
Fiduciary Rule Delayed by 60 Days”. The IRS also confirmed that it will not apply section 4975 of the Internal Revenue Code, which imposes excise taxes on prohibited transactions, with respect to transactions covered by the temporary enforcement policy.
The DOL specifically announced that the June 9, 2017 phased implementation date will not be extended. However, the DOL intends to seek public input on the entire Fiduciary Rule and whether the January 1, 2018 implementation date should be extended, or whether other substantive revisions to the Fiduciary Rule or related PTEs would be appropriate. In an op-ed in the Wall Street Journal entitled “Deregulators Must Follow the Law, So Regulators Will Too,” Secretary of Labor Alexander Acosta stated that after careful consideration, the DOL has found no principled legal basis to delay the partial implementation of the Fiduciary Rule beyond June 9, 2017, while seeking public input. However, Field Assistance Bulletin No. 2017-02 states that it is possible that there will be additional changes or a further delay to the portions of the Fiduciary Rule and PTEs currently scheduled to become effective January 1, 2018.
Also on May 22, 2017, the DOL published a set of frequently asked questions regarding the transition period, including the temporary enforcement policy. The frequently asked questions also address, among other concerns, which portions of the Fiduciary Rule and related exemptions apply as of June 9, 2017 compared with January 1, 2018, examples of communications not constituting fiduciary investment advice, and explanations of compliance with the Impartial Conduct Standards during the transition period.
These developments shut down speculation regarding whether the June 9, 2017 date would be delayed, but do not otherwise change the compliance or litigation landscape in any meaningful way. Companies affected by the Fiduciary Rule continue to be best served by efforts to comply with the Impartial Conduct Standards now, and preparation for compliance with the Best Interest Contract Exemption or other PTE as of January 2018. Notwithstanding the exact form of the final Fiduciary Rule and PTEs, the efforts made this year to improve training, processes and procedures will strengthen financial services and insurance companies’ defenses when litigation concerning allegedly conflicted financial advice begins. Although it is comforting to have confirmation that the DOL and IRS will not pursue enforcement actions during the June 9, 2017 to December 31, 2017 transition period for companies working in good faith to comply, the more significant risk continues to be the civil litigation, including class actions, that looms on the horizon. Monday’s statements from the DOL do not change our suggested approach regarding the mitigation of that risk.
Client Alert 2017-130
