Better Be BIC-Ready

Advisors that work with ERISA-qualified plans may not have gotten as much breathing room as hoped with the Labor Department’s fiduciary regulation delay.

Indeed, the Labor Department has pushed the April 10 applicability date of the fiduciary rule back the widely anticipated 60 days to June 9, and they did provide some additional compliance space on the Best Interest Contract (BIC) Exemption.

However, the practical impact of the Labor Department’s positioning is that the new fiduciary rule will become applicable after the 60-day delay, and the BIC Exemption and the Principal Transactions Exemption will be available as of that date, even though these exemptions will only require fiduciaries to adhere to the Impartial Conduct Standards for covered transactions.

What this means, of course, is that effective June 9, advisors who are fiduciaries under the new expanded definition will have to comply with the Impartial Conduct Standards requirement, not make any materially misleading statements, and charge only reasonable compensation (already required under ERISA and the IRC). And many believe that meeting the Impartial Conduct Standards requirement effectively means no variable compensation, in addition to having to have systems in place to adhere to this impartial conduct standard.

Also effective June 9 is the DOL’s ability to enforce the fiduciary regulation in the context of an ERISA plan. Although mandatory exposure to class action lawsuits is delayed until Jan. 1, 2018, that is a function of the contract requirement, which doesn’t apply to ERISA plans. There is no similar deferral of the ERISA enforcement provisions; however, the DOL has pledged in the delayed regulation that they will adopt a “compliance-first” posture toward implementation. Nevertheless, ERISA provides a potential cause of action to both plans and plan participants that is well-ensconced in the law and may be a cause for concern during the transition period.

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