Full Implementation of Fiduciary Rules Likely To Be Extended

Fall 2017Articles For Your Benefit

In April 2016, the Department of Labor issued regulations to expand the definition of “fiduciary” under ERISA and the Internal Revenue Code as applied to those who render investment advice for a fee or other compensation with regard to the assets of a qualified retirement plan or an IRA. At the same time, the Department published two new exemptions from the prohibited transaction rules, namely, the Best Interest Contract (BIC) Exemption and the Principal Transactions Exemptions, as well as amendments to several existing prohibited transaction exemptions.

These regulations and prohibited transaction exemptions were to take effect April 10, 2017, but were delayed until June 9, 2017. In conjunction with the delay, the new and amended exemptions were modified to provide transitional relief through January 1, 2018, at which time, the fiduciary rules and exemptions will become fully applicable. During this transition period, impartial conduct standards apply, requiring that (1) advice be provided in the best interest of the plan participant or IRA owner; (2) that no more than reasonable compensation may be charged; and (3) that misleading statements be avoided.

Earlier this month, the Department of Labor proposed extending the transition period through July 1, 2019, and delaying, from January 1, 2018, to July 1, 2019, the full applicability dates for those exemptions. According to the Department, the primary purpose for the delay is to allow the time necessary for it to consider possible changes and alternatives.

The Office of Management and Budget now has approved that proposal, which means that the Department of Labor will move forward to collect comments and finalize the extension. It remains to be seen whether and to what extent the fiduciary rules will change prior to the final applicability date.