DOL Delays Fiduciary Rule Enforcement Until End of January
Posted on Categories Broker-Dealer, Professional Conduct, Regulation, RulemakingTags , ,

By George H. Friedman, SAA Publisher & Editor-in-Chief

In somewhat of a surprise, the Department of Labor (“DOL”) has delayed from December 20 until January 31 enforcement of its fiduciary rule.

We borrow from our past coverage to review the rule’s recent history. We reported in SAA 2021-01 (Jan. 14) that the DOL on December 15, 2020 had released the massive Final Rule, which was to become effective 60 days after its December 18 Federal Register publication (85 FR 92798Vol. 85, No. 244. P. 82798), or on February 16, 2021. In SAA 2021-05 (Feb. 11), we queried whether this would actually happen. As we had said before, the Final Rule’s long-term fate was unclear since it was to become effective after Inauguration Day. We had noted that House Financial Services Committee Chairwoman Maxine Waters (D-CA) last December wrote to then President-elect Biden urging that Reg BI and Form CRS be rescinded. And there was significant media and interest group speculation that the DOL would at least pause implementation before February 16.

Rule Rolls Out as Scheduled

Contrary to our expectations, though, we reported in SAA 2021-06 (Feb. 13) that the rule went into effect as scheduled. A February 12 Press Release stated: “The U.S. Department of Labor’s Employee Benefits Security Administration has confirmed that ‘Improving Investment Advice for Worker & Retirees,’ an exemption for investment advice fiduciaries, will go into effect as scheduled on Feb. 16, 2021. In the coming days, the agency will publish related guidance for retirement investors, employee benefit plans and investment advice providers.” Why this move? Said Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Ali Khawar: “This exemption allows for important investor protections, including a stringent ‘best interest’ standard of care for fiduciary recommendations of rollovers from ERISA-protected retirement accounts. 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, we will continue our stakeholder outreach to determine how we might improve this exemption, the rule defining who is an investment advice fiduciary, and related exemptions to build on this approach.” In the meantime, the temporary enforcement policy articulated in Field Assistance Bulletin 2018-02 was to remain in place until December 20, 2021.

Enforcement Delayed

The December date will be slipping a bit. The Department on October 25 released Field Assistance Bulletin 2021-02, announcing that the temporary enforcement policy would continue in force until January 31, 2022. Why the delay? Says the Bulletin: “The Department understands that the December 20, 2021 expiration date of the temporary enforcement policy poses practical difficulties for financial institutions that are in the process of complying with the exemption conditions. Specifically, financial institutions have expressed concern that they would incur significant additional distribution costs, because the December 20, 2021, expiration date does not align with their regular distribution cycle for disclosures. The expiration date also complicates the retrospective review requirement for financial institutions that want to perform their review on a calendar year basis.[] In addition, financial institutions are in the process of developing tools to comply with the rollover documentation and disclosure requirements ….”

What it Means

What does this delay in enforcement mean for firms? “The Department 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 are exempted in PTE 2020-02 or treat such fiduciaries as violating the applicable prohibited transaction rules. In addition, from December 21, 2021 through June 30, 2022, the Department will not pursue prohibited transactions claims against investment advice fiduciaries who are otherwise in compliance with PTE 2020-02 based solely on their failure to comply with the disclosure and documentation requirements set forth in Sections II(b)(3) and (c)(3) of that exemption, or treat such fiduciaries as violating the applicable prohibited transaction rule …” (footnotes omitted).


(ed: *Makes sense to us. As we say: “Better right than rushed.”)