Menu

Resources

Timely, relevant, and actionable investment perspective, best practices, and planning insights for institutional and wealth management clients from CAPTRUST's Consulting Research Group.

Advanced Filter

DOL’s Fiduciary Rule Vacated…Now What?

On March 15, we reported that the U.S. Court of Appeals for the 5th Circuit ruled on Chamber of Commerce of the United States of America, et al. v. U.S. Department of Labor, et al., striking down an earlier decision. The 5th Circuit found that the Department of Labor (DOL) overreached its designated role in creating the Conflict of Interest rule—otherwise known as the Fiduciary Rule—and its prohibited transaction exemptions (PTEs).

The DOL Fiduciary Rule Is No More…

In our last update, we mentioned possible paths for appeal, but on April 30, the DOL’s deadline to appeal the court’s decision came and went. On April 26, both AARP and the combined attorneys general from California, New York, and Oregon filed motions on behalf of the DOL. However, these attempts were decidedly shut down by the court on May 2. And, as we go to print, we expect the court to issue a mandate to formally vacate the rule.

What about the Advice Rendered under the Fiduciary Rule? 

With the issuance of this mandate, it will be as if the Fiduciary Rule never was, and the associated PTEs will be vacated. During the time the Fiduciary Rule was effective, many partiesincluding several plan recordkeeperswere using the rule’s updated definitions and various PTEs to protect themselves, which leaves a potentially problematic situation for many industry players. In an effort to address this, on May 7, the DOL issued Field Assistance Bulletin 2018-02, which provides that the “Department will not pursue prohibited transactions claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for transactions that would have been exempted….” The DOL foreshadowed issuance of additional guidance in the future, which we will watch for and report back, as appropriate.

Now What?

Technically, the DOL has 90 days from the issuance of the 5th Circuit's decision to appeal to the U.S. Supreme Court. However, with the issuance of the DOL guidance referenced above, that type of appeal seems unlikely and inconsistent with the current administration’s direction on regulatory matters.

Beyond the DOL, the Securities Exchange Commission (SEC) proposed its own best interest standard on April 18, and the proposed regulation is currently in the middle of a 90-day comment period. Additionally, several states, have indicated interest in forming their own fiduciary rules, and there is a possibility, however unlikely, for Congress to pass legislation on this topic. Lastly, the DOL itself could regroup and issue another rule.

So, What’s a Plan Sponsor to Do?

We will continue to monitor this situation and update our clients, as appropriate. In addition to our monitoring, here are some general next steps plan sponsors may want to consider in response to the rule’s demise:

  • Understand what changes will occur with your providers’ services;
  • Understand what, if any, decisions you need to make regarding your providers’ services and any agreement amendments;
  • Evaluate any potential disruption to your participants resulting from service changes;
  • Document your information gathering and analysis and any decisions made; and
  • Monitor developments from regulators like the SEC and legislative entities, including Congress and state legislatures for guidance, rules, or laws related to new fiduciary standards.

In closing, please know that today’s release has no impact on the way we work with our clients or operate our business. As always, if you have questions, please let us know.