Final DOL Fiduciary Rules Simplify Some Mechanics, but Retain Core Principles . . . and Flaws
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- The U.S. Department of Labor (DOL) has finalized its regulation expanding the definition of fiduciary investment advice with respect to pension plans covered by the Employee Retirement Income Security Act of 1974, as amended (ERISA), and individual retirement accounts (IRAs).
- The final rule and the new and amended prohibited transaction exemptions that accompany it have largely the same structure and breadth as the 2015 proposal. The rule will treat as a fiduciary virtually anyone who makes an investment-related recommendation to an ERISA plan, IRA, or an ERISA plan participant or IRA beneficiary and receives any sort of compensation in connection therewith.
- While several significant improvements were made, the final rules lack any specific guidance and direction regarding how to comply with the demanding conditions of the Best Interest Contract Exemption (BIC Exemption), a purported centerpiece of the DOL’s regulatory initiative. Without this guidance, the BIC Exemption will be unworkable for many of the entities who will require its relief.
- The final rule will be effective April 10, 2017, providing approximately one year for affected parties in the financial services industry to absorb its implications and make necessary adjustments. While full compliance with the BIC Exemption is not required until January 1, 2018, several essential components will need to be adhered to as soon as the rule becomes effective, rendering the transition period somewhat illusory.