A look at the Spring 2019 regulatory agenda for the Department of Labor (DOL) shows the agency is expecting to issue a notice of proposed rulemaking (NPRM) for “Fiduciary Rule and Prohibited Transaction Exemptions” in December.
On April 8, 2016, the DOL replaced the 1975 definition of “fiduciary” with a new, far more expansive definition that would have caused many more advisers and brokers to become fiduciaries to retirement plan participants under the Employee Retirement Income Security Act (ERISA). However, this new definition was vacated in 2018 by the 5th U.S. Circuit Court of Appeals. After declining to appeal that ruling to the Supreme Court under the Trump Administration, the DOL later signaled in its Fall 2018 regulatory agenda that it intended to issue additional regulations in this area in September of 2019.
Of note is the change from the fiduciary rule being in the “final rule” stage in the Fall 2018 agenda to being in the “proposed rule” stage in the Spring 2019 agenda.
During a hearing in early May by the Committee on Education and Labor of the U.S. House of Representatives, Secretary of Labor Alexander Acosta was questioned about whether the DOL is effectively collaborating with the Securities and Exchange Commission (SEC) to tamp down on conflicts of interest in the advisory industry. “The DOL is working with the SEC, which was asked by Congress to come up with appropriate responses to protect these individuals. We are communicating with them, and based on our collaborative work, we will be issuing new rules in this area,” Acosta said. However, he did not at that time give a time-frame for either when the SEC or DOL will take the next steps in the process.
Reflecting on this process, Kevin Walsh, principal at Groom Law Group, said the DOL seems to be taking on a more ambitious agenda than it has previously under the Trump Administration. Apart from watching for any developments on the fiduciary rule front, he said, retirement industry stakeholders have also been waiting to see what the DOL may do around electronic disclosures of plan information and investment fees.
“I think there is a real hint coming from DOL that these things are coming sooner rather than later,” Walsh said. “You can also look at the statements coming from the Securities and Exchange Commission, with their Regulation Best Interest, and make the argument that it’s increasingly likely the DOL and SEC will put out connected rulemaking before the end of the year. There will likely be coordination between what the SEC does and this DOL effort.”The SEC has published a proposed Regulation Best Interest, which it indicates it intends to make final in September. SEC Chairman Clayton has said this rulemaking package picks up where the DOL’s defeated approach left off, but critics say the disclosure-based approach taken by “Reg BI” (as opposed to an actual prohibition-based approach) is too weak to make a real difference for investors dealing with bad-apple advisers and brokers.