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Fiduciary Rule Changes Up In The Air

Posted by Kevin Forbes on Apr 6, 2017 9:00:00 AM

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The Department of Labor’s new fiduciary rule with respect to retirement plans caused a lot of consternation when first announced.  The new rule created special rules aimed at limiting conflicts of interests within the world of investment advice for retirement accounts.  Some people within the industry decried the rule as more needless regulation that would only increase costs for consumers, whereas others simply saw it as codifying changes most investment advisors had already made in the wake of the 2008 financial collapse.  Now, though, several factors raise questions as to the rule’s status before it goes into effect in June of 2017. 

Changes With ERISA For New Fiduciary Rule

The new fiduciary rule made several significant changes to existing rules governing ERISA plans.  The Department of Labor changed the rule defining a fiduciary in a way that significantly expanded the class of people who would qualify as fiduciaries. It also created a Best Interest Contract Exemption, which allows investment advisors to continue to receive commission based compensation only by acknowledging their fiduciary status and implementing impartial conduct standards. READ MORE: Department Of Labor Releases Final Rules Of Fiduciary Duty In Retirement Planning

 NAFA Files Suit To Keep Rule From Coming Into Effect.

First, litigation currently exists seeking to have the rule overturned.  The National Association for Fixed Annuities (“NAFA”) filed suit in the US. District Court for the District of Columbia to prevent the rule from ever coming into effect.  The District Court has issued two separate orders both denying NAFA’s request for a preliminary injunction and denying NAFA’s suit on the merits.  The Court originally found on November 4 that the Department of Labor had acted within the scope of its statutory grant of authority in changing the rules applied to investment advisors to retirement accounts.  When NAFA filed a notice of appeal and a renewed motion for a preliminary injunction immediately following the first denial, the Court issued an order denying the renewed motion on November 23.

NAFA responded by requesting an emergency injunction from the U.S. Court of Appeals for the District of Columbia Circuit.  The Court of Appeals denied that request in mid December, further limiting NAFA’s chances of overturning the rule through litigation.

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Before And After January 2017

Still, that still leaves those opposed to the new rule several opportunities to repeal the rule.  First, Republican legislators in the House and Senate can introduce new legislation that explicitly overturns the rule.  Additionally, Republican appointments to run the Department of Labor and related organizations may seek to either delay the rule’s implementation, significantly re-write it, or eliminate it altogether. READ MORE: ERISA And The Continued Controversy of 401Ks And IRAs

Here or Gone?

Whatever the fate of the rule in the new administration, though, businesses cannot put themselves in the position of assuming something will happen to the rule prior to its June effective date.  That assumption might leave a company woefully unprepared for compliance if nothing happens, so companies must continue to put into place procedures to comply with the fiduciary rule while leaving themselves open to a quick change of plans early next year.


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Topics: For Your Business, Employee Benefits, Fiduciary Liability, Kevin Forbes