DOL Delays Advice Exemption Enforcement Against Good Faith Fiduciaries

• Published date: 30 October 2021
• Subject Matter: Employment and HR, Compliance, Retirement, Superannuation & Pensions, Employee Benefits & Compensation
• Law Firm: Groom Law Group
• Author: Jacob W. Eigner, Jennifer Eller, Allison Itami, Michael Kreps, George Sepsakos and Jeanne Klinefelter Wilson

On October 25, 2021, the Department of Labor ('DOL') issued Field Assistance Bulletin 2021-02 announcing:

• A new nonenforcement policy in effect from December 21, 2021 through January 31, 2022 for certain prohibited transactions that may arise because of the provision of fiduciary investment advice and
• That DOL will not enforce the documentation and disclosure requirements applicable to rollover recommendations a financial institution makes while otherwise relying on PTE 2020-02 through June 30, 2022.

Background

On April 8, 2016, DOL published a new fiduciary regulation (the '2016 Fiduciary Rule') that significantly expanded the scope of investment advice for purposes of determining who is an investment fiduciary. Because of the 2016 Fiduciary Rule, many service providers modified their investment advice programs to comply with the Best Interest Contract ('BIC') Exemption and/or the Principal Transactions Exemption that were also issued in connection with the 2016 Fiduciary Rule. However, the Fifth Circuit in Chamber of Com. of United States of Am. v. United States Dep't of Lab., 885 F.3d 360 (5th Cir. 2018) subsequently issued a mandate vacating both the 2016 Fiduciary Rule and the related exemptions.

Consequently, DOL issued FAB 2018-02 to provide temporary nonenforcement relief to investment advice fiduciaries who made good faith efforts to comply with the impartial conduct standards that were the basis of the vacated exemptions. Subsequently, in late 2020, DOL finalized a new prohibited transaction exemption, PTE 2020-02, for financial institutions that are investment advice fiduciaries. In connection with the issuance of PTE 2020-02, DOL announced that FAB 2018-02 would remain in place through December 20, 2021. On October 25, 2021, DOL announced additional transition relief, in recognition of the expiration of FAB 2018-02, and the challenges faced by investment advice fiduciaries implementing the FAB's successor, PTE 2020-02. In extending this new transition relief, DOL cited 'practical difficulties for financial institutions that are in the process of complying with the exemption conditions' of PTE 2020-02.

DOL's Transitional Relief

DOL's PTE 2020-02 transition relief includes two components. First, for the period from December 21, 2021 through January 31, 2022, DOL will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently and in good faith to comply with the impartial conduct standards for...