DOL Seeks Comment on President’s Proposal to Postpone Fiduciary Rule
By Mark Johnson, Ph.D., J.D.


The Department of Labor’s (“DOL”) new fiduciary rule was set to take effect on April 10, 2017. However, in a Memorandum to the Secretary of Labor on February 3, 2017, the President proposed delaying the applicability date by 60 days.


The delay is not yet in effect, as of this writing. President Trump has requested a delay, and he has asked the DOL to use that delay to further investigate whether this rule would have any negative effects on investment advice.


The public was given 15 days through March 17 to comment on whether they think the DOL should delay the rule, as requested.


The public also has 45 days to point out any negative effects. The DOL will then decide how to move forward. The DOL could pass the rule as it is, amend it, or cancel it. Even if it is passed, Congress could step in and eliminate the rule.


The President asked the DOL to use this time to evaluate any negative effects the rule may have on Americans’ ability to seek investment advice. Specifically, the President asked whether the rule has reduced the availability of investment advice, whether the rule has disrupted the investment industry, and whether the rule is likely to increase litigation costs or the cost of accessing investment advice.


The fate of the fiduciary rule depends on the answers to these questions.


Background on the DOL Fiduciary Rule


The Department of Labor (“DOL”) and the Employee Retirement Income Security Act (“ERISA”) have sought to protect retirement savings programs, including traditional defined benefit pension plans, 401(k) plans, and self-directed IRAs, since 1974.


Many Americans seek investment advice from financial advisers for help in determining which type of retirement savings account will work best for them. The government has become concerned in recent years that some financial advisers may have conflicts of interest, since manyfinancial advisors are paid for suggesting certain funds to their clients.


The rules governing investment advice for these programs had remained relatively unchanged for many years. In April 2016, however, the DOL issued a rule (commonly known as the “fiduciary rule”) intendedto ensure that retirement advisers put their client’s financial interests first.


A central element of the DOL’s proposed rule is that it would classify more financial advisers as fiduciaries. The range of activities that would be considered to be “investment advice” is expanded under the rule, and could include selling mutual funds, variable and indexed annuities, or variable life products in connection with IRA or an employee benefit plan governed by ERISA.


The proposed fiduciary rule also sought to preserve access to retirement education, require that firms implement procedures to avoid conflicts of interest, and that they inform clients of potential conflicts of interest.


Some argued the rule was necessary to prevent financial advisers from pushing high-fee products that cut into their client’s savings. Others argued the rule would, instead, harm client’s over the long term. Largely, the rule was supported by some members of Congress as necessary to address recent practices that raise conflict of interest issues, while other members of Congress denounced it for potentially cutting off financial advice for lower income individuals.


We first wrote about the DOL fiduciary rule in a June, 2015 post titled, “Department of Labor Issues Proposed Fiduciary Rule on Investment Advice.” The revision to the DOL fiduciary rules were intended to close a perceived loophole that allows for potential conflicts of interest between a retirement investment adviser and plan participants. The DOL proposal sought in part to define who is considered a fiduciary, or trustee, and differences in fiduciary protections.


Following release of the proposed rulemaking in 2015, the DOL received 2,254 comment letters and hosted four days of hearings featuring 75 witnesses. We wrote about the types of comments submitted in an August 2015 post titled, “Proposed Fiduciary Rule Elicits Strong Debate.


In Summary


As part of the President’s Memorandum, the DOL is asked to “prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule.” One portion of this request is to determine whether the fiduciary rule is likely to cause an increase in litigation.


Industry observers will closely monitor comments submitted on this topic.


March, 2017



ABOUT THE AUTHOR: Mark Johnson, J.D., Ph.D. Mark Johnson, Ph.D., J.D., is a highly experienced ERISA expert. As a former ERISA Plan Managing Director and plan fiduciary for a Fortune 500 company, Dr. Johnson has practical knowledge of plan documents as well as an in-depth understanding of ERISA obligations. He works as an expert consultant and witness on 401(k), ESOP and pension fiduciary liability; retiree medical benefit coverage; third party administrator disputes; individual benefit claims; pension benefits in bankruptcy; long term disability benefits; and cash conversion balances.


ERISA Benefits Consulting, Inc. by Mark Johnson provides benefit consulting and advisory services and does not engage in the practice of law.


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