By Jane Meacham, Contributing Editor

The U.S. Department of Labor (DOL) on March 1 proposed a 60-day delay to June 9 of its so-called fiduciary rule on investment advice conflicts of interest and related exemptions, pushing back the rule’s original effective date of April 10. The DOL also opened two comment periods related to the rule—a 15-day one ending March 17 on whether enforcement of the rule should be delayed; and a 45-day comment period on the substance of the rule ending April 17.

The delay proposal and requests for comments are in response to a memorandum issued February 3 by President Donald Trump that directed the DOL to examine the rule and related exemptions and prepare an updated economic and legal analysis concerning their likely impact.

The DOL’s detailed Federal Register notice, published March 2 (82 Fed. Reg. 12319), invites comments on the delay of the rule’s applicability date, questions raised in the presidential memorandum, and general questions of law and policy concerning the final rule and the prohibited transaction exemptions (PTEs) it allows.

OMB Impact Assessment

The Office of Management and Budget (OMB) on February 28, upon concluding its review of a DOL notice submitted February 9 delaying implementation of the fiduciary rule, upgraded the impact of the delay, calling it “economically significant.” The OMB, the agency tasked with approving federal regulations or their delays, previously had classified the fiduciary rule’s delay as “not economically significant.”

OMB officials met with supporters of the DOL fiduciary rule for 2 weeks before changing the economic impact status of the delay. As part of this determination, the DOL delay request outlines theoretical calculations made by the agency and the OMB to quantify potential investor losses that could result from delaying the rule’s effective date.

A regulatory action is found to be "economically significant" if the OMB determines that it is “likely to have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”

The upgraded significance level of the delay could make it more difficult for the Trump administration to dismantle or alter the rule because a more detailed assessment of the rule’s costs and benefits—and suggestions of possible alternatives to it—is required.

Although the final presidential memorandum did not specify a duration for the rule’s delay, it could have been as long as 180 days. Trump, in the memorandum, directed the DOL to reassess the rule and modify or replace it, if it is determined to cause harm to investors or companies. The Trump administration and Republican-controlled Congress had criticized the DOL fiduciary rule during the election season in 2016, although no specifics about their party’s plans for the rule were spelled out.

Possible Next Steps

A client bulletin issued March 2 by law firm Drinker Biddle & Reath LLP listed the following three possible steps that the DOL could take after the 45-day comment period ends:

• Permit the fiduciary rule and exemptions to become applicable on June 9;
• Begin the regulatory process to revoke the rule and exemptions; or
• Begin the process to modify the rule and exemptions.

Also, it is possible that the DOL will not be able to make a decision by June 9 and will further delay the applicability date.

“The other important point to keep in mind is that the delay and possible revocation or modification of the fiduciary rule does not mean there are no fiduciary rules. The existing rules that have been in place for decades remain in place,” the bulletin continued.

The financial services industry contends the rule is too complex and expensive to comply with, and argues that the rule broadening the definition of a fiduciary will discriminate against lower-asset investors seeking financial guidance.

But many retirement plan sponsors and their third-party administrations (TPAs) have taken steps to be ready for the rule’s original April 10 applicability date, leading retirement plan industry representatives to suggest the at least some of rule’s dictates attempting to protect consumers against conflicted investment advice will remain in some form.

Court Challenge to Rule Rejected

The delay notice from the OMB came shortly after Texas federal trial Judge Barbara M.G. Lynn ruled in favor of the DOL in a suit brought by nine plaintiffs against the agency’s fiduciary rule (U.S. Chamber of Commerce v. Hugler and U.S. Dept of Labor, No. 3:16-cv-01476-M (N.D. Tex. Feb. 8, 2017)). It was the third judicial ruling in favor of the DOL proposal.

The rule, finalized in April 2016 after years of public comment and revisions, expands the Employee Retirement Income Security Act’s (ERISA) fiduciary duties and raises liability concerns for plan sponsors. The just-delayed April compliance deadline has led them to take stock of the affected fiduciary activities that they or their service providers may be performing, along with updating contracts with administrators and reviewing their communications with plan participants.