The Final Fiduciary Rule: Déjà Vu?
On December 15, the Department of Labor (DOL) released what it calls “Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees,” more commonly known as the Final Fiduciary Rule. This comes after the Proposed Rule was released on June 29, with the comment period yielding over 100 written comments, and subsequent public hearings. The Final Rule was largely consistent with the Proposed Rule; however, it did make some modifications to reflect the comments received, including:
- Recordkeeping requirements are narrowed to allow only the Department of Labor and the Department of the Treasury to obtain access to a financial institution’s records, as opposed to plan fiduciaries and retirement investors
- The disclosure requirements are revised to include written disclosure of the reasons that a rollover recommendation is in the best interest of retirement investors
- The retrospective review provision is revised to provide that certification can be made by any Senior Executive Officer, as defined in the exemption, rather than requiring certification by the Chief Executive Officer (or equivalent officer), as originally proposed
- A self-correction provision has been added
As some may recall, in 2016, the DOL also released a Final Fiduciary Rule, which was reversed by the Trump Administration due to a quirk in the law, even though it was supposed to be effective months before Trump took office.
As we wrote then, there was also a sense of déjà vu, as this was similar to what happened when President Obama took office. Will the third time be the charm for the Final Fiduciary Rule? Or will it be, in the famous words of Yogi Berra upon witnessing New York Yankee greats, Mickey Mantle and Roger Maris, repeatedly hit back-to-back home runs in the Yankees' seasons in the early 1960s, like “déjà vu all over again”?
Unfortunately, it is unlikely that a Final Fiduciary Rule will become effective anytime soon. The reason being that it does not take effect until 60 days after the publication in the Federal Register, which will take place after President Joe Biden’s inauguration. This timing makes it easy for the new President to delay the effective date until his administration decides what to do with the Rule, similar to the reversals by the Obama, and later Trump, administrations. If, like the Final Proxy Rule, the Final Fiduciary Rule became effective prior to the next presidential administration, it would be far more difficult to reverse.
Why does the DOL keep trying? Despite the fact that the DOL has had to start over twice, each iteration of rulemaking leads to significant progress in attempting to provide a rule that satisfies all stakeholders. While the current Final Fiduciary Rule has been criticized by some for being a watered-down version of the prior Rule, it contains some significant new protections in the area of participant rollovers. This, if the Rule actually becomes effective, would potentially eliminate much of the current predatory activity, where bad actors roll participant funds out of retirement plan accounts to the participants’ detriment.
Where will we go from here if this Final Fiduciary Rule is abandoned? We will likely see another Proposed Rule put forth by the DOL, since they are nothing if not persistent. Perhaps, this time around, consideration will be given to finalizing the Rule in the middle of a presidential administration, rather than at the end.
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.
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