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DOL Sends Fiduciary Proposal to OMB for Final Review

But it may be too late to stop an incoming Biden administration from placing a stay on it.

The Department of Labor’s proposed fiduciary exemption has reached the White House for review, though it remains to be seen whether the final rule will come too late to avoid possibly being overturned by the Biden administration.

The “Improving Investment Advice for Workers & Retirees Exemption” rule was sent to the White House's Office of Management and Budget (OMB) for final review on Tuesday, according to the OMB’s Office of Information and Regulatory Affairs. The Trump administration’s proposal reinstates a “five-part test” from 1975 that was used to determine whether particular recommendations should be regulated under ERISA’s fiduciary status. It also proposed a prohibited transaction exemption for fiduciaries as long as they adhered to certain “impartial conduct standards.” 

The proposed rule, which was released in late June, was criticized by some who worried it might weaken investor protections, though industry organizations like the Securities Industry & Financial Markets Association (SIFMA) and Financial Services Institute (FSI) expressed support. 

The rule also received surprising pushback from some insurers, who worried that the wording of the prohibited transaction exemption could extend ERISA’s fiduciary standard to some rollover recommendations that would not previously have been subject to scrutiny. This may have contributed to the proposal coming to the OMB at such a late date in the Trump administration, according to A. Valerie Mirko, a partner with Baker McKenzie.

(The DOL proposal) was already delayed in terms of it being proposed, and I think the response from industry may have further delayed the process of getting a final rule to OMB review,” she said.

However, it is not certain that the rule will ever go into effect even if it is finalized. The incoming Biden administration could stop the rule pending further review, essentially overturning it without the need to go through another lengthy rule-making process.

I think at this point, we’re in the situation where time is just running out and delays in finalizing the fiduciary prohibited transaction exemption proposal have left the proposal very vulnerable to being scrapped with the change in administration in January,” Mirko said.

According to Jamie Hopkins, the director of retirement research with Carson Group, if the rule fails it’s likely the Biden administration’s DOL would enact its own version, though that likely would not happen until 2022.

TAGS: Industry
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