On November 27, 2017, the DOL issued a final rule that extends by 18 months the transition period for the principal transactions prohibited transaction exemption (PTE) and best interest contract exemption (BICE) related to the fiduciary investment advice regulation that replaces the existing regulatory interpretation of fiduciary investment advice under ERISA Section 3(21)(A)(ii) (29 U.S.C. § 1002(21)(A)(ii)) (fiduciary rule). Under the final rule, the transition period ends 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.

On April 6, 2016, the DOL issued the fiduciary rule, which broadens the types of advice that qualify as fiduciary investment advice under ERISA Section 3(21)(A)(ii) (29 U.S.C. § 1002(21)(A)(ii)) and Section 4975(e)(3)(B) of the Internal Revenue Code (26 U.S.C. § 4975(e)(3)(B)). In connection with the fiduciary rule, the DOL also issued two new PTEs and revised several existing PTEs (see Practice Note, Prohibited Transactions and Exemptions Under ERISA and the Code).

In February 2017, President Trump issued a memorandum directing the DOL to review the fiduciary rule, indicating that the rule may not be "consistent" with the priorities of his administration (see Legal Update, President Trump Issues Memorandum Directing DOL to Review Fiduciary Investment Advice Regulation).

In April 2017, the DOL announced that the applicability dates for the fiduciary rule and related PTEs would be delayed from April 10, 2017 to June 9, 2017 (see Legal Update, DOL Issues Final Rule Delaying Applicability Date of Fiduciary Rule and Related Prohibited Transaction Exemptions). That guidance further delayed compliance with the remaining conditions in the PTEs, such as the requirements to execute the best interest contract and make specific written disclosures and representations of fiduciary compliance in communications with investors, until January 1, 2018 (the transition period).

In July 2017, the DOL published a request for information (RFI), seeking public comments on whether the applicability dates of certain provisions of the PTEs should be further delayed (see 82 Fed. Reg. 31278 (July 6, 2017)).

In August 2017, the DOL published the proposed rule extending the transition period for the BICE and principal transactions exemption by 18 months. The proposed rule also delayed by 18 months the applicability dates for certain amendments to PTE 84-24. (See Legal Update, DOL Issues Proposed Rule Delaying Prohibited Transaction Exemptions' Applicability Dates and FAB 2017-03; 82 Fed. Reg. 41365-01 (Aug. 31, 2017).)

For more information on the fiduciary rule and related PTEs, see Fiduciary Investment Advice Toolkit.

Adopting the proposed rule without change, the final rule extends the transition period for the BICE and principal transactions exemption for 18 months (that is, until July 1, 2019) (see Practice Notes, Best Interest Contract Prohibited Transaction Exemption and Principal Transactions Exemption Under ERISA).

The final rule also delays by 18 months the applicability dates for certain amendments to PTE 84-24, which concerns advisory transactions involving insurance and annuity contracts and mutual fund shares.

The rules in effect during the original transition period apply during the extended transition period, including the requirement that financial institutions and advisers comply with impartial conduct standards. These standards include:

Consistent with the proposed rule, the final rule cites the DOL's ongoing reexamination of the fiduciary rule and the related PTEs as a primary reason for the delay. In the DOL's view, it could not complete its reexamination and finalize any proposed changes by January 1, 2018. Likewise, the DOL believes it would not have enough time to coordinate with the Securities and Exchange Commission (SEC) and other agencies regarding conduct standards for investment advisers and broker-dealers. Finally, the delay could prevent:

In response to public comments received on the proposed rule, the DOL acknowledged that the delay could result in the deferral of some estimated investor gains. However, the DOL concluded that the impartial conduct standards and existing enforcement mechanisms provide sufficient protection for investors during the transition period.

The DOL also addressed comments arguing that it lacked authority for the 18-month delay. In rejecting these comments, the DOL argued that it may delay, modify, or revoke a PTE through notice and comment rulemaking, so long as it:

The DOL noted that it was granting the delay under Section 408 of ERISA (29 U.S.C. § 1108). Section 408 gives the Secretary of Labor discretionary authority to grant an administrative exemption if the Secretary finds that the exemption is:

Having made these findings, the DOL concluded that it has the authority to extend the transition period and delay the applicability dates.

In the proposed rule, the DOL requested comments on alternative approaches to determining the length and timing of the delay, including:

Despite the comments received on the alternative approaches, the DOL determined that a fixed delay of 18 months is the best approach. In the DOL's view, a fixed delay avoids uncertainty and the challenges associated with choosing the trigger for the contingent or tiered approach. Additionally, the DOL indicated that it can finish its review of new information in the record and implement any changes by July 1, 2019.

The DOL agreed with commenters that conditioning an extension of the transition period on the behavior of the entity seeking relief is not warranted.

In May 2017, the DOL issued Field Assistance Bulletin 2017-02 (FAB 2017-02) announcing that it would not pursue claims against fiduciaries working in good faith to comply with the fiduciary rule and related PTEs between June 9, 2017 and January 1, 2018 (that is, the original transition period) (see Legal Update, DOL Issues FAB 2017-02 Announcing No Claims Against Fiduciaries During Phased Implementation Period and FAQs Addressing Transition Issues). The final rule extends this temporary enforcement policy until July 1, 2019.

During this extended transition period, fiduciary advisers must adhere to the impartial conduct standards. Advisers must adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and not make misleading statements.