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Date Set for DOL’s Investment Advice Exemption—But Will it Matter?

Regulatory Compliance

The Department of Labor’s newly finalized prohibited transaction exemption for offering investment advice was published in the Federal Register Dec. 18, yet questions remain about whether it will actually come to be. 

Released on Dec. 16, the new, principles-based prohibited transaction class exemption is intended to allow investment advice fiduciaries to offer a wide array of investment advice services in compliance with the Impartial Conduct Standards. This includes permitting investment advice fiduciaries to receive compensation as a result of providing fiduciary investment advice, including fiduciary investment advice to roll over a participant’s account in a workplace retirement plan to an IRA and other similar types of rollover recommendations.

With the Dec. 18 publishing date and a 60-day delay in the effective date (due to the OMB’s determination that it would have a significant economic impact), the PTE would become effective Feb. 16, 2021. Of course, that is well after President-Elect Joe Biden is sworn into office, meaning the final PTE will almost certainly be subjected to review by the new administration—and possibly be rescinded.

Typically, when a new president is sworn in, the new administration moves to immediately freeze any regulatory projects that have not yet taken effect so that officials of the incoming administration can review the pending guidance. 

Moreover, with many Democrat members of Congress already calling for the PTE to be withdrawn and the fiduciary rulemaking process restarted, there’s a good chance that will happen. For example, within hours of DOL’s release of the final PTE, Sen. Patty Murray (D-WA), the ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Rep. Bobby Scott (D-VA), chairman of the House Education and Labor Committee, released a statement calling for the guidance to be rescinded. “We are going to do everything we can to work with the incoming Biden Administration to reverse the damage of President Trump’s backwards policies and to strengthen the retirement security of people across the country as they work to weather this crisis,” Murray and Scott stated. 

Additionally, an Aug. 6 letter from top Democrats in the House and Senate—including Vice President-Elect Sen. Kamala Harris (D-CA)—called on the DOL to withdraw its investment advice package and start over. “The final rule and the proposed [prohibited transaction exemption] are not in the best interests of retirement savers. The DOL should not only revisit and modernize the five-part test, but it also should meet its ERISA obligations in the PTE process,” they argued. 

Given this context and the delayed effective date of the PTE, it seems the chances are high that the PTE will be delayed and eventually withdrawn, meaning the battles over fiduciary rulemaking and investment advice—which go back to at least 2009, when the Obama administration withdrew an investment advice rule issued in the final days of the Bush administration—would continue. 

We’ve seen this movie before…