Compliance November 27, 2017

DOL Delays Full Implementation of Fiduciary Rule Again

The new delay is for 18 months.

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The Department of Labor (DOL) has decided to delay implementation of the special transition period for the fiduciary rule’s Best Interest Contract Exemption (BICE) and the Principal Transactions Exemption, and of the applicability of certain amendments to Prohibited Transaction Exemption (PTE) 84-24 for 18 months, from January 1, 2018 to July 1, 2019. The decision follows the review of the delay by the Office of Management and Budget (OMB), at the DOL’s request earlier this month.

The DOL plans to use the 18 months to review the numerous public comments it has received and to review whether the exemptions appropriate in light of action by the Securities and Exchange Commission (SEC), state insurance regulators and other regulators. The President has also asked the DOL to review whether the fiduciary rule would limit Americans’ access to retirement information and financial advice.

Throughout the transition period, fiduciary advisers will need to keep their clients’ best interests at heart when making investment recommendations.

The Financial Services Institute (FSI) and American Council of Life Insurers (ACLI) both issued statements applauding the 18-month delay. “This delay will allow the DOL to conduct a thorough review of the rule, as ordered by President Trump, to ensure investor choice and access to retirement savings advice is protected,” said Dale Brown, president and CEO of FSI. “In addition to the rule review, we are encouraged by the DOL’s statement that they will coordinate with other regulators, including the SEC, to simplify and streamline the rule.”

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ACLI President and CEO Dirk Kempthorne said: “The evidence before the department is clear. The fiduciary regulation has harmed small and moderate retirement savers by restricting or eliminating access to retirement products and services. Its bias against commission-based arrangements restricts consumer access to annuities, the only product in the marketplace providing guaranteed lifetime income.”

However, the Financial Planning Coalition said it is against the delay: “The Coalition believes that requiring advisers to work in retirement investors’ best interest is an essential and long overdue reform. Delaying enforcement of the fiduciary rule unnecessarily derails that reform and jeopardizes the financial well-being of millions of American savers, who lose billions of dollars each year because of conflicts of interest.”

The extension will be published in an upcoming edition of the Federal Register.

Compliance November 27, 2017

Democrats Unveil Bill to Create Rehabilitation Trust Fund

The fund would be used to make loans to multiemployer defined benefit (DB) plans that are in critical or declining status or that are insolvent but not terminated.

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A bill has been introduced in Congress to create a Pension Rehabilitation Trust Fund that would be managed by a new Pension Rehabilitation Administration within the Department of the Treasury, to make loans to multiemployer defined benefit (DB) plans that are in critical or declining status or that are insolvent but not terminated. The bill is in line with a pledge by House and Senate Democrats to protect union multiemployer pensions.

The Secretary of the Treasury would have the power to transfer monies to the administration to cover the loans. A director, nominated by the president, would oversee the administration. The administration would work in collaboration with the Pension Benefit Guaranty Corporation (PBGC) and the Department of Labor (DOL).

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Plans would be able to apply to the Pension Rehabilitation Administration for loans and have 29 years to repay the loans, plus interest. Plans that receive such loans would not be able to increase benefits, thereby allowing “any employer participating in the plan to reduce its contributions, or accept any collective bargaining agreement which provides for reduced contribution rates” throughout the loan period. Terminated plans would be required to reinstate benefits.

The administration would renegotiate the terms of the loan for any plan unable to repay it “and, if the Pension Rehabilitation Administration deems necessary to avoid any suspension of the accrued benefits of participants, forgiveness of a portion of the loan principal.”

To become eligible for such a loan, the DB plan would have to demonstrate the ability to repay it, as well as participant benefits. Plans would also have to reveal how they will invest the money and whether it involves any annuity purchases. If an annuity is purchased, it would need to be “rated A or better by a nationally recognized statistical rating organization, and the purchase of such contracts shall meet all applicable fiduciary standards under the Employee Retirement Income Security Act of 1974.”

Furthermore, “any investment manager of a portfolio [in the plan] shall acknowledge in writing that such person is a fiduciary under the Employee Retirement Income Security Act of 1974 with respect to the plan.”

Once an application is made, the administration would respond within 90 days.

If a plan is also applying for financial assistance from the PBGC, it would need to file both that application and the loan application to the administration jointly. Plans that are already receiving financial assistance from the PBGC would be given a simplified loan application from the administration.

The full text of the bill can be viewed here.

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