DOL Delays Parts of Fiduciary Rule, Extends Enforcement Relief

Despite the delay, retirement plan fiduciaries face heightened litigation risks

By Julia Zuckerman and Marjorie Martin, © Conduent Dec 4, 2017
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Finalizing its earlier proposal, the U.S. Department of Labor (DOL) extended until July 1, 2019, the effective date for so-called "prohibited transaction exemptions" to the retirement plan fiduciary rule that went into effect on June 9, 2017. The exemptions pertain to how fiduciaries are compensated for providing investment advice to retirement plan participants.

The DOL made the announcement in a Nov. 27 press release and published the rule in the Federal Register on Nov. 29.

During the extended transition period, the department will consider possible changes and alternatives to the exemptions, as well as potential input from the Securities and Exchange Commission (SEC).

The DOL similarly extended its "enforcement lite" policy for fiduciaries working diligently and in good faith to comply with the updated rule.

Background

In 2016, the DOL finalized the fiduciary rule and thereby expanded the scope of the definition of retirement plan fiduciaries and impermissible conflicts of interests for employer-sponsored retirement plans (as well as for individual retirement accounts and for health savings accounts). The rule was generally scheduled to take effect in April 2017, with certain transition rules effective in 2018. However, on Feb. 3, 2017, President Donald Trump directed the DOL to re-evaluate the effect of the rule and its likely impact on retirement savings efforts.

In response, the DOL pushed back the April applicability date by 60 days and said it would focus on providing compliance assistance, rather than enforcement, through the end of 2017. Thus, the expanded fiduciary definition went into effect on June 9, 2017, but the DOL delayed the written disclosures and fiduciary representation requirements under the revised prohibited transaction exemptions until Jan. 1, 2018.

At that time, the DOL also released Field Assistance Bulletin No. 2017-03 to assure constituents that it would not enforce an aspect of the Best Interest Contract Exemption (BIC or BICE) and Principal Transactions Exemptions (PTE) that would allow investors to bring class action lawsuits rather than be required to arbitrate claims.

Litigation Risks

While the expanded definition of fiduciary that went into effect on June 9, 2017 remains in place, the DOL has extended its temporary enforcement relief period to July 1, 2019. During this time, plan sponsors should ensure that the financial institutions and advisors they contract with:

  • Continue to give prudent advice that is in retirement investors' best interest.
  • Charge no more than reasonable compensation.
  • Avoid misleading statements.

But the DOL will not pursue claims against fiduciaries working "diligently and in good faith" to comply with these obligations.

In evaluating compliance, DOL will instead focus on the steps a fiduciary has taken to reduce the scope and severity of conflicts of interest that could lead to violations of the impartial conduct standards.

Notwithstanding this enforcement relief, as of June 9, 2017, participants can bring class action lawsuits against fiduciaries for breaches that occur on or after that date.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Next Steps

While keeping an eye on updates to the rule and its application, plan sponsors should continue to focus on compliance with the DOL's expanded definition of fiduciary—by, for example, reviewing their investment education materials and conducting fiduciary training sessions.

The DOL did not explicitly say so in this guidance, but it appears that Field Assistance Bulletin No. 2017-03 remains in force. This means that during the transition period, while plan participants can sue to enforce their rights under the Employee Retirement Income Security Act, fiduciaries can require arbitration for settling claims.

Julia Zuckerman, JD, is a director at Conduent HR Services and Marjorie Martin is a principal at Conduent's Knowledge Resource Center. This article originally appeared in the Nov. 28, 2017 issue of For Your Information, produced by Conduent's Knowledge Resource Center. © 2017 Conduent HR Services. All rights reserved. Republished with permission. Hyperlinks were added by SHRM Online. 


Plan Sponsor Actions: Other Views

"Plan sponsors should take advantage of this extended period to confirm that financial advisors who have been engaged to advise plan participants on their individual retirement investment decisions will be ready for compliance when the time comes," advises Bradley, a national law firm. "A review of advisors' compliance plans would be in order. In particular, plan sponsors should take note that they still have in all cases a duty to monitor service providers and avoid prohibited transactions."

"Plan sponsors and administrators may wish to confirm that existing plan service providers maintain a comprehensive compliance strategy and will rely (or will continue to rely) on any needed prohibited transaction exemptions," recommends law firm Eversheds Sutherland. "In that regard, some providers may have already implemented changes in their services agreements, while others have not. It is also possible that some revisions that had previously been made final will be revisited."



Related SHRM Articles:

No More Delays for Fiduciary Rule Means It's Time to Ensure Compliance, SHRM Online Benefits, May 2017

How the Fiduciary Rule Affects Retirement Plan Sponsors, SHRM Online Benefits, August 2016

 

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