DOL Fiduciary Rule Vacated. Now What?
April 4, 2018, Think Advisor
November 2017, Federal Register
Field Assistance Bulletin No. 2017-03
August 2017, EBSA
Presidential Memorandum on Fiduciary Duty Rule
February 2017, The White House
NAIC Comment Letter
July 2015, NAIC
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Director, Government Relations
Last Updated 5/01/2018
Issue: In April 2016, the U.S. Department of Labor (DOL) completed regulations broadening its definition of fiduciary investment advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. These regulations will expand the scope of who is considered a fiduciary to ERISA retirement plans and IRAs, which will include a broader set of insurance agents, insurance brokers, and insurers. As such, it is expected to have far reaching implications for the overall retirement marketplace. This is concerning to insurance regulators as many of us expect sound investment advice will be less readily available to the public if the DOL Fiduciary regulation is implemented.
The compensation restrictions imposed by the change in the DOL rule have the effect of limiting the willingness of some insurance producers to serve persons with smaller retirement accounts. Instead of benefiting from the fiduciary standard, people with smaller retirement accounts are now having difficulty finding an advisor willing to work with them. This creates an information void for our most vulnerable citizens.
Overview: The DOL finished its work on the regulations in April 2016. As part of the rulemaking, the NAIC submitted a comment letter in July 2015 and met with DOL officials to underscore the importance of operationalizing a number of the proposed rule's provisions and providing clarity in the rule to limit the potential for unintended consequences, confusion or litigation. The first phase of implementation was set to be applicable in April 2017.
The Trump administration issued a Presidential memorandum in Feb. 2017 ordering the DOL to reevaluate the rule. As a result, implementation was pushed back to June 9, 2017 with full implementation expected by Jan. 1, 2018. In Oct. 2017, the DOL filed a rule with the Office of Management of Budget (OMB) to delay the fiduciary rule's effective date by another 18 months to July 1, 2019. The expanded definition of fiduciary is currently in effect, along with new "impartial conduct standards." However, certain exemptions have been delayed.
Status: For 2018, the NAIC will continue monitoring DOL and SEC activities. Insurance regulators will need to interact with the federal agencies as changes are made. Additionally, the Annuity Suitability (A) Working Group will update the Suitability in Annuity Transactions Model (#275) to ensure consistency and compatibility with the federal agencies with which insurance regulators share jurisdiction. NAIC model regulation goes into much detail about what constitutes suitability information and what factors must be considered when determining if a product is suitable for a person. Insurance producers are held to accountable to the suitability standard when selling a new or replacement annuity.