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DOL Releases Final Version of Fiduciary Rule

The new rule allows fiduciaries in retirement plans to be exempt from certain prohibited transactions provided they adhere to a number of 'impartial conduct standards.'

The Trump administration's Department of Labor released a finalized version of its fiduciary proposal Tuesday, a day after the White House’s Office of Management and Budget completed its final review. But the rule goes into effect after Joe Biden’s inauguration as the nation’s 46th president, leaving the rule vulnerable to change under the new administration.

The new rule is entitled “Improving Investment Advice for Workers & Retirees Exemption” and allows fiduciaries to be exempt from certain prohibited transactions provided they adhere to a number of “impartial conduct standards,” which include a best interest standard, a 'reasonable compensation' standard and a requirement that they make no 'materially misleading statements.'

The rule also asserts that the "five-part test" originally passed in 1975 to determine whether certain recommendations should be regulated under ERISA's fiduciary status was reinstated when the 5th U.S. Circuit Court of Appeals vacated the Obama administration's own fiduciary rule in 2018. U.S. Labor Secretary Eugene Scalia says the new rule aligns with standards from other regulators, including the Securities and Exchange Commission.

“Today’s action provides clear regulatory standards that ensure American workers and retirees have access to high-quality, affordable investment advice,” Scalia said. “In tandem with action taken last year by the Securities and Exchange Commission, this exemption gives Americans a greater opportunity to invest in the American economy with the assistance of professionals acting in their best interest.”

The Department of Labor released an initial version of the rule earlier this year. The proposal was criticized by consumer advocates, who worried that it weakened investor protections. It even received opposition from some insurers, who worried at the time that the exemption’s wording could extend ERISA’s fiduciary standard to include certain rollover recommendations. After the public comment period closed, the DOL sent a final version of the rule to the OMB for final review, which was completed Monday, according to the OMB’s Office of Information and Regulatory Affairs. 

But with Joe Biden entering the White House on Jan. 20, 2021, time is extraordinarily tight for Trump’s Labor Department. This timing can matter; since the original proposed rule was designated as being “economically significant,” this would mean the effective date for the rule would be 60 days, according to the National Association of Plan Advisors. According to the DOL, the prohibited transaction exemption “will be effective and available to financial institutions and investment professionals beginning 60 days after the date of publication of the final exemption in the Federal Register.”

This means its effective date will happen after Biden’s inauguration, and his administration could have a chance to review, and potentially curtail, the rule. A. Valerie Mirko, a partner with Baker McKenzie, said earlier on Tuesday that she'd expected the DOL would act quickly.

“I do think [the rule is] very vulnerable to be put aside, or not enforced, and ultimately replaced when the Biden administration begins its term,” Mirko said


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