Compliance

DOL Responds to Fiduciary Rule Lawsuit

By Rebecca Moore editors@strategic-i.com | July 19, 2016
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The DOL points out that it was expressly given broad authority to grant “conditional or unconditional” administrative exemptions to the prohibited transaction provisions in the Code. Moreover, Congress expressly delegated to DOL the authority to grant exemptions only on its determination, in accordance with DOL’s expertise and competing policy concerns, that an exemption would be administratively feasible and in the interests of retirement investors and protective of their rights. 

“In light of the changes in the marketplace for retirement advice since ERISA was enacted in 1974, the Rule’s revisions ensure that the fiduciary definition extends to those who are now largely responsible for providing investment advice to retirement investors. Instead of relying on ERISA-covered defined benefit plans, ‘where their employer has both the incentive and fiduciary duty to facilitate sound investment choices,’ most investors are now covered by individual account-based plans for which individuals make their own choices and rely on advisers in a market where ‘both good and bad investment choices are myriad and [conflicted] advice ... is commonplace,’” the DOL says in its response. Thus, contrary to NAFA’s contention that the rule improperly expands the universe of fiduciaries, the DOL says the rule instead aligns the definition of investment advice with today’s marketplace realties and ensures, consistent with congressional intent, that fiduciary status applies to “persons whose actions affect the amount of benefits retirement plan participants will receive.” 

In the preamble to the Rule, the Department—which has the relevant authority and expertise to account for these considerations—explains in detail how the “regular basis” requirement in the 1975 regulation, in particular, no longer aligns with congressional intent in light of today’s market realities. 

As DOL explained in the preamble to the Best Interest Contract (BIC) Exemption, the impartial conduct standards constitute “baseline standards of fundamental fair dealing that must be present when fiduciaries make conflicted investment recommendations to Retirement Investors” because the standards “are necessary to ensure that Advisers’ recommendations reflect the best interest of their Retirement Investor customers, rather than the conflicting financial interests of the Advisers and their Financial Institutions.” The DOL argues that given Congress’s broad delegation of authority to DOL, as well as the requirement that any exemptions serve the interests, and protect the rights, of retirement investors, DOL’s determination to condition use of the BIC Exemption on compliance with “baseline standards of fundamental fair dealing,” id., is entirely reasonable and “entitled to great deference.”

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