A number of business groups, including the Insured Retirement Institute and the Securities Industry and Financial Markets Association, are urging the Labor Department’s Employee Benefits Security Administration to expand the temporary enforcement guidelines that have been in place since the fiduciary exemption rule entered into force in February, in order to prepare for the new rule.
In the letter to Ali S. Khawar, acting deputy secretary of EBSA, the groups asked the agency to extend the temporary enforcement policy from six to 12 months after its current end date of December 20, 2021. .
“EBSA and all stakeholders would benefit from such an extension, as it would allow companies to judiciously consider using Prohibited transaction exemption 2020-02 and implement it as effectively as possible, while reducing the confusion and disruption to consumers that would result from maintaining the current date, ”the letter said.
The rule, titled “Improving Investment Advice for Worker and Retiree Exemption,” aimed to bring DOL’s fiduciary conduct rules in line with Securities and Exchange Commission regulations. It allows trustees to receive partial compensation from third parties when they recommend certain investments in pension plans and IRAs, provided they meet certain “impartial standards of conduct.”
The rule was offered for the first time in summer 2020, and has been finalized in the last few weeks of the Trump administration. When Joe Biden took office in January, he was unsure whether the rule would go into effect, as it was particularly vulnerable to delays arriving so late in Trump’s tenure. Some consumer advocates have urged the Biden administration to delay its effective date.
Nevertheless, on February 12, the Ministry of Labor has announced the rule would come into effect as planned a few days later. But the DOL authorized temporary enforcement guidelines promulgated after the Obama administration’s fiduciary rule was overturned in federal court in 2018 to run until December 20 this year.
Temporary politics states that the DOL will not continue to enforce the rule if the trustees work “diligently and in good faith” to uphold standards of impartial conduct.
In addition to IRI and SIFMA, the other signatories of the letter to EBSA are the National Association of Insurance and Financial Advisors, the National Association of Independent Life Insurance Brokerage Agencies and the Chamber of United States trade.
In the letter, they argued that EBSA should allow the current rules as written to enter into force and have a period of review and evaluation before further changes are made. made.. In an interview with WealthManagement.com, Jason Berkowitz, head of legal and regulatory affairs at IRI, said it was “inappropriate” to end the temporary enforcement guidelines while simultaneously considering changes to the fiduciary rule (the DOL plans to publish a regulatory notice on the rule change in December, according to the American Society of Pension Professionals and Actuaries).
Based on previous statements and a preamble included in the final rule proposal, Berkowitz believed the DOL might try to broaden the definition of who should be included as a trustee, and he feared that additional provisions to the exemptions are “inconsistent” with the way the industry operates.
“Let’s see if more rules are needed,” he said. “If they are not prepared to wait for this, they should extend this temporary enforcement policy until they have completed this work.”
The signatories of the letter argued that the potential for rule changes is an incentive for companies not to change their own policies, calling the current rule a “moving target” in which procedures developed today to comply with the rule. may not be sufficient after it has been revised. The IRI and others were also concerned that small businesses were less aware of the December 20 expiration of the temporary policy. While large businesses have been preparing for compliance for months, small businesses might not have the resources to keep pace.
“The resource disadvantages that small businesses face may prevent them from being able to comply on December 20, potentially leaving them with no choice but to reject fiduciary status,” the letter said. “This could potentially create an uneven playing field between retirement investors who use large corporations and small businesses as advisers.”
Berkowitz was particularly concerned about industry compliance with an exemption requirement requiring advisors to provide a comparison when recommending a rollover from a client’s checking account. According to Berkowitz, if a client had a 401 (k) and their advisor recommended an IRA rollover, the advisor should be able to show the differences between the two options. But Berkowitz argued that 401 (k) disclosure statements aren’t always accessible, and even if advisers gain access to this information, businesses would need a technology solution to comply.
“Otherwise you’re going to end up with a lot of back of the towel, ‘hey, let me sketch it for you and this is what that looks like,’ but it won’t be consistent,” he said. noted. “There won’t be as much oversight capacity within the oversight structure to ensure information is presented accurately and appropriately.”