In April 2017, The Department of Labor issued its long awaited final rule establishing a new "fiduciary" standard that governs corporate retirement plans like 401(k)s. Previously, brokers’ recommendations for retirement plans were only required to be “suitable,” but the new rule requires that advisers generally act in the best interest of their clients when providing investment guidance. DOL has designated specific prohibited transactions for employee benefit plans and IRAs, and persons engaged in these transactions would be considered to be acting in conflict of interest. However, DOL also provided exemptions from some prohibited transaction classes -- known as an 84-24 Prohibited Transaction Exemption - that would allow specific investments to be provided to employee benefit plans and IRAs that would not create fiduciary duty status.
Prior to the final rule, President Donald Trump issued the Presidential Memorandum on Fiduciary Duty Rule directing the DOL to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice, and to prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule. If DOL concludes that the Fiduciary Duty Rule so requires, DOL is directed to publish a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law.
Labor Secretary Alexander Acosta took the highly unusual step of announcing in a Wall Street Journal op-ed that the controversial Fiduciary Rule that had been delayed by the DOL and an Executive Order, would go into partial effect on June 9, 2017, with full implementation on Jan. 1, 2018.
Fixed index annuities had been classified as an insurance product subjected to the suitability standard of sale. Initial versions of the rule proposed by the DOL had indicated that indexed annuities would continue to be exempt, and sales of these investments increased on that assumption. The final DOL rule, to the surprise of many insurance industry observers, did not exempt indexed annuities. Instead, both FIAs and variable annuities are considered by the DOL to be securities and are subject to the fiduciary duty standards. FIAs and variable annuities - as well as other prohibited transaction classes - can be provided to employee benefit plans and retirement savings accounts only if the provider complies with the very complex and extensive reporting and disclosure requirements of the Best Interest Contract Exemption.
While the DOL continues to review the rule, it is unlikely that any courts will delay the rule, and a Congress preoccupied with health care, tax reform, and other issues is less likely to act in two weeks. The Securities Exchange Commission has authority to promulgate a fiduciary investment standard, and an SEC rule is said to be in development. It is uncertain, however, whether the SEC will act and, if so, what the impact of any action will be on the DOL rule.
NAMIC members providing annuity products to employee benefit plans and retirement savings accounts are now faced with new and complex compliance, reporting and liability issues. These products are considered by the DOL to be securities and are subject to the fiduciary duty standards, and can be provided to employee benefit plans and retirement savings accounts only if the provider complies with the very complex and extensive reporting and disclosure requirements of the Best Interest Contract Exemption. NAMIC has opposed these requirements as unnecessary and unduly burdensome and will continue to seek their revision.
February 19, 2019 The Department of Labor is considering regulatory options in light of a federal court ruling that vacated the so-called “fiduciary rule” that would have expanded fiduciary obligations. The DOL first issued a regulation in 1975 defining who is fiduciary... Read more
December 3, 2018 The Securities and Exchange Commission plans to issue a final rule on its advice standards package for broker-dealers and investment advisors by September 2019, according to the agency’s regulatory agenda. Specifically, the SEC is considering... Read more
June 25, 2018 The federal 5th Circuit Court of Appeals officially ended the Department of Labor's Fiduciary Rule, issuing a mandate to that effect on June... Read more
June 18, 2018 The Securities and Exchange Commission is accepting comments until Aug. 7 on a proposed rule establishing a standard of conduct for broker-dealers and their associates when making a recommendation of any securities transaction or investment strategy... Read more
April 23, 2018 The Securities and Exchange Commission released a 1,000-page set of proposals April 18 to limit brokers and investment advisers conflicts of interest for non-retirement and retirement accounts. The three proposed rules, which have become known as the... Read more