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FAB 2018-02 Announces Temporary Enforcement Policy for the DOL's Fiduciary Rule
Practical Law Legal Update w-014-6283 (Approx. 6 pages)
FAB 2018-02 Announces Temporary Enforcement Policy for the DOL's Fiduciary Rule
by Practical Law Employee Benefits & Executive Compensation
| Published on 08 May 2018 • USA (National/Federal) |
On May 7, 2018, the Department of Labor (DOL) issued Field Assistance Bulletin (FAB) 2018-02, which provides that the temporary enforcement policy announced in May 2017 regarding the DOL's fiduciary investment advice regulation will continue to apply to the period from June 9, 2017, until after regulations or exemptions or other administrative guidance has been issued. The DOL 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 would have been exempted in the Best Interest Contract Exemption (BICE) and Principal Transactions Exemption. Nor will the DOL treat those fiduciaries as violating the applicable prohibited transaction rules.
On May 7, 2018, the DOL issued Field Assistance Bulletin 2018-02 (FAB 2018-02), which provides that the temporary enforcement policy announced in FAB 2017-02 regarding the DOL's fiduciary investment advice regulation and associated prohibited transaction exemptions (PTEs), including the Best Interest Contract Exemption (BICE) and Principal Transactions Exemption, will continue to apply to the period from June 9, 2017, until after regulations or exemptions or other administrative guidance has been issued (see Legal Update, DOL Issues FAB 2017-02 Announcing No Claims Against Fiduciaries During Phased Implementation Period and FAQs Addressing Transition Issues). Under this temporary enforcement policy, the DOL 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 would have been exempted in the BICE and Principal Transactions Exemption (see Practice Notes, Best Interest Contract Prohibited Transaction Exemption and Principal Transactions Exemption Under ERISA).
- Treat those fiduciaries as violating the applicable prohibited transaction rules.
For more information on the fiduciary rule, see:
Background
In April 2016, the DOL issued the fiduciary rule, which amends the definition of fiduciary investment advice in 29 C.F.R. Section 2510.3-21 and replaces it with a new definition for purposes of ERISA. Specifically, the fiduciary rule broadens the types of advice that constitutes fiduciary investment advice under ERISA Section 3(21)(A)(ii) (29 U.S.C. §1002(3)(21)) and Section 4975(e)(3)(B) of the Internal Revenue Code (Code) (26 U.S.C. § 4975(e)(3)(B)), subject to specific exclusions for particular types of communications that are non-fiduciary in nature. In connection with the final rule, the DOL also issued two new PTEs (the BICE and the Principal Transactions Exemption), as well as revisions to several existing PTEs. The fiduciary rule applies to both ERISA-governed employee benefit plans and individual retirement accounts (IRAs).
The fiduciary rule was scheduled to become effective on April 10, 2017, but the applicability date was delayed several times as a result of several Trump Administration actions (see Legal Updates, DOL Delays Applicability of Fiduciary Investment Advice Rule by 60 Days and DOL Issues Final Rule Delaying Applicability Date of Fiduciary Rule and Related Prohibited Transaction Exemptions).
Several significant developments have occurred since then:
- In May 2017, the DOL issued FAB 2017-02, which announced a temporary enforcement policy under which the DOL would not pursue claims against fiduciaries working in good faith to comply with the fiduciary investment advice regulation (see Legal Update, DOL Issues FAB 2017-02 Announcing No Claims Against Fiduciaries During Phased Implementation Period and FAQs Addressing Transition Issues).
- In November 2017, the DOL issued a final rule that extends by 18 months the transition period for the Principal Transactions PTE and BICE related to the fiduciary rule (see Legal Update, DOL Extends Transition Period for BICE and Principal Transactions Exemption Until July 1, 2019). As a result, the applicability date of these exemptions is extended to July 1, 2019, rather than January 1, 2018. The final rule also delays by 18 months the applicability date for certain amendments to PTE 84-24.
- In March 2018, the US Court of Appeals for the Fifth Circuit issued its opinion in Chamber of Commerce of the United States of America v. United States Department of Labor, holding that the fiduciary rule conflicts with the plain text of ERISA and violates the Administrative Procedure Act (APA). The Fifth Circuit vacated the fiduciary rule, the BICE, the Principal Transactions Exemption, and related amendments to existing prohibited transaction exemptions (PTEs) (see Legal Update, Fifth Circuit Vacates DOL's Fiduciary Rule).
Temporary Enforcement Policy Extension
The DOL explained that it issued FAB 2018-02 to dispel confusion regarding the fiduciary obligations of certain financial institutions. According to the DOL, on or about May 7, 2018, the US Court of Appeals for the Fifth Circuit is expected to issue a mandate effectuating its opinion in Chamber of Commerce of the United States of America v. United States Department of Labor.
As explained in FAB 2018-02, the DOL is aware that:
- The uncertainty following the Fifth Circuit's expected order could disrupt existing investment advice arrangements to the detriment of retirement plans, retirement investors, and financial institutions.
- Some financial institutions have devoted significant resources to comply with the BICE and the Principal Transactions Exemption and may prefer to continue to rely upon the new compliance structures.
Therefore, the DOL has concluded that financial institutions:
- Should be permitted to continue to rely upon the temporary enforcement policy announced in FAB 2017-02 until the DOL issues additional guidance.
- May also choose to rely upon other available exemptions to the extent applicable after the Fifth Circuit's decision. But the DOL will not treat an adviser's failure to rely upon other exemptions as a violation of the prohibited transaction rules if the adviser meets the terms of the DOL's temporary enforcement policy.
According to FAB 2018-02, the DOL intends to provide appropriate guidance in the future. The DOL is evaluating the need for other temporary or permanent prohibited transaction relief for investment advice fiduciaries, including prospective and retroactive prohibited transaction relief. The DOL will consider any applications for additional relief.
Practical Implications
Practitioners should stay tuned for additional guidance regarding the future of the fiduciary rule.