DOL Fiduciary Proposal Expected by End of October

The Office of Management and Budget held its final meetings on the Department of Labor’s new fiduciary rule proposal, and a full proposal is likely to be released by the end of October, retirement industry sources speaking on background confirmed this week.

The OMB is currently considering a draft proposal submitted by the DOL which the budget office must first approve before it is sent out for comment.

According to attendees of meetings with OMB, officials in that department appear to be leaning strongly in favor of releasing the rule soon. This could be partially motivated by fear of a government shutdown come November 17, when the current continuing resolution authorizing funding for the federal government is set to expire, a risk aggravated by the vacant Speaker seat in the House of Representatives.

The “retirement security” proposal, as the DOL refers to the rule, aims to address compensation structures and potential conflicts among retirement advisers. It would likely broaden ERISA obligations to include advisers offering advice on rollovers to individual retirement accounts from defined contribution plans, according to statements made by the DOL.

Industry sources say the proposal is expected to be “comprehensive” in scope and could regulate revenue-sharing agreements and conflicts related to affiliate transactions. The challenge for the DOL would be to make a proposal consistent with previous litigation, which has said that IRA rollovers are one-time transactions and therefore cannot trigger ERISA fiduciary status.

Industry advocates have said that Regulation Best Interest, enforced by the Securities and Exchange Commission, is adequate to address potential conflicts with regards to IRA rollovers. However, the DOL likely wants to expand ERISA’s application to more advisers, since ERISA is stricter than Reg BI as it relates to conflicts: Whereas Reg BI permits conflicts to exist as long as they are mitigated and disclosed, ERISA fiduciaries need a prohibited-transaction exemption to address a conflict.