DOL to Hold Hearing on Investment Advice Proposed Rule

The Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) will hold a public hearing to consider issues related to adopting a proposed prohibited transaction exemption (PTE) as part of its proposed rule on improving investment advice for workers and retirees.

The proposed rule would create a new exemption for investment advice fiduciaries as defined and policed under the Employee Retirement Income Security Act (ERISA). The proposed exemption offers a new prohibited transaction class exemption for investment advice fiduciaries and is based on an existing temporary policy adopted after the 5th Circuit Court of Appeals vacated the DOL’s previous 2016 fiduciary rule package.

If finalized as proposed, the exemption would allow investment advice fiduciaries to give more choices for retirement clients using so-called “impartial conduct standards.” According to the DOL leadership, these impartial conduct standards rise to the level of “a best interest standard.” This is to say that they require reasonable compensation and that financial professionals make no materially misleading statements.

As part of this proposal, the department is also taking the ministerial action of amending the Code of Federal Regulations to implement the 5th Circuit’s order. As the DOL explains, the court’s order had the effect of reinstating the department’s 1975 regulation defining who is an investment advice fiduciary under ERISA and the Internal Revenue Code (IRC), commonly known as the “five-part test.” The court’s order also had the effect of reinstating the department’s Interpretive Bulletin 96-1 regarding participant investment education.

The end of the comment period for the proposed rule revealed that some parties argue the fiduciary proposal is being rushed, while others broadly support the DOL’s aim to align its regulations with the Securities and Exchange Commission (SEC).

The hearing will be held on September 3 and (if necessary) September 4, beginning at 9 a.m. EDT. Due to the COVID-19 pandemic, the hearing will be held virtually.

The DOL said testimony will be limited to individuals or parties who submitted a comment or hearing request on the proposed exemption before the close of the comment period. Requests to testify at the hearing on the proposed exemption should be submitted to the DOL on or before August 28. Text of the Notice of Hearing, which will be published in the Federal Register on August 25, is here.