DOL Issues Temporary Enforcement Policy on Fiduciary Investment Advice Rule | Practical Law

DOL Issues Temporary Enforcement Policy on Fiduciary Investment Advice Rule | Practical Law

On March 10, 2017, the Department of Labor (DOL) issued Field Assistance Bulletin No. 2017-01 (FAB 2017-01) announcing a temporary enforcement policy related to the DOL's recent proposed rule that would extend for 60 days the applicability date of the final rule defining fiduciary investment advice under Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). FAB 2017-01 provides that the DOL will not initiate enforcement actions during any potential gap period that results from the fiduciary rule becoming applicable before the proposed rule extending the applicability date becomes final or in the event the DOL decides not to delay the fiduciary rule.

DOL Issues Temporary Enforcement Policy on Fiduciary Investment Advice Rule

Practical Law Legal Update w-006-8907 (Approx. 5 pages)

DOL Issues Temporary Enforcement Policy on Fiduciary Investment Advice Rule

by Practical Law Employee Benefits & Executive Compensation
Law stated as of 13 Mar 2017 • USA (National/Federal)
On March 10, 2017, the Department of Labor (DOL) issued Field Assistance Bulletin No. 2017-01 (FAB 2017-01) announcing a temporary enforcement policy related to the DOL's recent proposed rule that would extend for 60 days the applicability date of the final rule defining fiduciary investment advice under Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, as amended (ERISA). FAB 2017-01 provides that the DOL will not initiate enforcement actions during any potential gap period that results from the fiduciary rule becoming applicable before the proposed rule extending the applicability date becomes final or in the event the DOL decides not to delay the fiduciary rule.
On March 10, 2017, the Department of Labor (DOL) issued Field Assistance Bulletin No. 2017-01 (FAB 2017-01) announcing a temporary enforcement policy related to the DOL's recent proposed rule that would extend for 60 days the applicability date of the final fiduciary investment advice rule that replaces the existing regulatory interpretation of fiduciary investment advice under Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 (ERISA) (81 Fed. Reg. 20945 (Apr. 8, 2016)) (fiduciary rule).
The DOL issued the fiduciary rule on April 6, 2016 and it was scheduled to become applicable on April 10, 2017 (for more information on the fiduciary rule, see Fiduciary Investment Advice Toolkit). In connection with the fiduciary rule, the DOL also issued two new prohibited transaction exemptions (PTEs) as well as revisions to several existing PTEs.
However, several recent changes have been made to the timing of the fiduciary rule, including:
Financial services institutions have expressed concern about the timing of the proposed rule delay, particularly regarding:
  • Compliance with the fiduciary rule if there is a "gap period" that results from the rule becoming applicable on April 10 before the proposed rule delay becomes final.
  • Compliance with the fiduciary rule if the DOL determines not to delay the rule.
  • In either of these cases, if there is sufficient time to provide retirement investors with the disclosures or other documents required to comply with the fiduciary rule.
In light of these the concerns, FAB 2017-01 adopts the following temporary enforcement policy:
  • If the DOL issues a final rule delay after the April 10 applicability date, it will not initiate an enforcement action because a financial institution or adviser did not satisfy the conditions of the fiduciary rule or PTE during the gap period in which the rule becomes applicable before the proposed delay is implemented, including the failure to provide retirement investors with required documents and disclosures.
  • If the DOL decides not to issue a delay in the fiduciary rule and related PTEs, it will not initiate an enforcement action because a financial institution or adviser fails to satisfy the requirements of the rule as of the April 10 applicability date, provided that the financial institution or adviser satisfies the conditions of the rule (including sending out required disclosures or other documents) within a reasonable period of time after the DOL publishes its decision not to delay the April 10 applicability date. The DOL provides further that it will treat the 30-day cure period under Section IX(d)(2)(vi) of the best interest contract exemption (BICE) (see Practice Note, Best Interest Contract Exemption: Good Faith Exemptions) and Section VII(d)(2)(v) of the principal transactions exemption (see Practice Note, Principal Transactions Exemption: Disclosure Requirements) as being available to any financial institutions which, as of the April 10 applicability date, do not provide retirement investors with required disclosures and other documents.
FAB 2017-01 also provides that if circumstances require additional temporary relief, the DOL will consider taking any necessary additional steps.

Practical Implications

FAB 2017-01 provides confirmation to financial services institutions, plan fiduciaries, and retirement investors that they will not be penalized by the DOL for failing to comply with the fiduciary rule during this period of uncertainty in which the DOL is currently considering delaying the rule, and for a short period after the rule becomes applicable to the extent that the DOL chooses not to delay the rule.