As we reported in an earlier Compliance Buzz, in response to an Executive Order from President Trump in February 2017, the Department of Labor (DOL) released a proposed regulation in March to delay the applicability date of new fiduciary rules and related prohibited transaction exemptions (PTEs) from April 10, 2017 until June 9, 2017. The extension was proposed to provide the DOL with more time to review the fiduciary rules to determine their impact on investors and retirees.
Although April 10 is fast approaching, the DOL has still not finalized the proposed extension. To defray mounting concern, confusion and uncertainty among financial services institutions and investors, the DOL has issued a temporary enforcement policy relating to the proposed delay of the new fiduciary rules and related PTEs. The DOL’s temporary enforcement policy is set forth in Field Assistance Bulletin (FAB) No. 2017-01 and provides as follows:
- If the DOL issues a final rule after April 10, 2017 to delay the applicability date of the new fiduciary rules and related PTEs, the DOL will not initiate any enforcement actions against financial advisors or institutions that do not satisfy conditions of the new rules or the PTEs during the “gap” period between April 10 and when the delay is implemented, including for any failures to provide retirement investors with disclosures or other documents needed to comply with provisions of the new fiduciary rules or related PTEs.
- If the DOL decides not to delay the new fiduciary rules or PTEs beyond April 10, the DOL will not initiate any enforcement actions against financial advisors or institutions that, as of April 10, fail to satisfy the conditions of the new fiduciary rules and PTEs, so long as they satisfy the conditions of the new rules or PTEs (including sending out required disclosures and other necessary documents to retirement investors) within a reasonable period after publication of the DOL’s decision not to delay the April 10 applicability date. The DOL will also allow financial institutions to take advantage of the 30-day cure period under PTEs 2016-01 (Best Interest Contract Exemption) and 2016-02 (Principal Transactions Exemption) if, as of April 10, they did not provide retirement investors with necessary disclosures or other documents required by those PTEs under the new rules.
In response to the DOL’s issuance of its temporary enforcement policy, the Internal Revenue Service (IRS) issued Announcement 2017-4, which sets forth a temporary excise tax non-applicability policy that conforms with the DOL’s temporary enforcement policy. Pursuant to the Announcement, the IRS agrees that it will not apply excise taxes under Internal Revenue Code §4975 and any related reporting obligations with regard “to any transaction or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.”
Although the IRS’ conforming relief policy provides protection to financial advisers and institutions against excise taxes for certain potential prohibited transactions, it does not address the obligations or rights of other parties or preclude participant lawsuits. In FAB 2017-01, however, the DOL provides that “[t]o the extent that circumstances surrounding the decision on the proposed delay of the April 10 applicability date give rise to the need for other temporary relief, including prohibited transaction relief, EBSA will consider taking such additional steps as necessary.”
We will continue monitoring the situation and will keep readers apprised of any forthcoming developments.