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DOL Confirms Fiduciary Rule Rewrite, Other Agency Priorities

Regulatory Agencies

The Department of Labor’s newly released Spring 2021 regulatory agenda confirms that a fiduciary rule rewrite is in the works and provides other key insight for the department’s regulatory plans for the coming months.  

Fiduciary Rule Recast

The 10-year saga over revising the definition of fiduciary will continue. As various Biden administration officials had been suggesting over the past few months, the DOL’s Spring 2021 Regulatory Agenda confirms that the Employee Benefits Security Administration (EBSA) plans to issue a Notice of Proposed Rulemaking (NPRM) addressing the definition of fiduciary. The DOL agenda item shows that EBSA plans to issue the NPRM by December 2021. 

According to the summary explanation, the amendment will consider the practices of investment advisers and the expectations of plan officials, participants and IRA owners who receive investment advice, as well as developments in the investment marketplace, including in the ways advisers are compensated that can subject advisers to harmful conflicts of interest.

In conjunction with this rulemaking, the agenda item notes, EBSA will evaluate available prohibited transaction class exemptions and consider proposing amendments or new exemptions to ensure consistent protection of employee benefit plan and IRA investors.

While many industry stakeholders believed the Biden administration would immediately pull the plug on the Trump administration’s Prohibited Transaction Exemption (PTE) for investment advice fiduciaries, the Biden officials at EBSA confirmed in February that the department would allow the PTE to go into effect as scheduled on Feb. 16, 2021. 

As EBSA Acting Assistant Secretary Ali Khawar noted in April, after conducting a review and meeting with various stakeholders, the DOL concluded that it would be best to allow PTE 2020-02 to go into effect, with the current period serving as a “runway” before people really need to be in full compliance. Khawar also noted that the extension of the temporary enforcement policy in FAB 2018–02 would remain in effect until Dec. 20, 2021, to allow parties a transition period. 

At the same time, he advised that the department’s work was not done. While the unified agenda does not provide any more details, it does provide the most formal marker that additional changes are in the works. And because the proposal will be issued in the form of an NPRM, that will allow for a formal public comment period. 

Additional DOL Priorities

  • Climate risks and ESG. With respect to President Biden’s Executive Order addressing “Climate-Related Financial Risks,” the DOL advised that EBSA will be undertaking a review of regulations concerning “Financial Factors in Selecting Plan Investments” and “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights.” This was widely expected and previously alluded to when the DOL announced in March that it will not enforce the final rules that were issued under the Trump administration. 
  • Form 5500. The focus of this project is under section 202 of the SECURE Act, which requires implementation of a consolidated annual report for certain groups of similar plans by no later than Jan. 1, 2022, that should apply to Form 5500 annual return/reports for plan years beginning after Dec. 31, 2021. The unified agenda shows that the DOL plans to issue a NPRM by June 2021.
  • Lifetime Income Illustrations. While an interim final rule was published in September 2020, the unified agenda shows that the DOL plans to issue a final rule by July 2021. The final rule would reflect the changes under section 203 of the SECURE Act to add a lifetime income illustration to pension benefit statements furnished to participants in certain defined contribution plans. 
  • Voluntary Fiduciary Correction Program. According to the explanation, EBSA plans to amend and restate its VFCP, which was originally adopted in 2002 and revised in 2005 and 2006. The amendments will expand the scope of some transactions currently eligible for correction and streamline correction procedures for certain others. EBSA says it will issue a restatement of the VFCP in its entirety and request public comments. EBSA also plans to propose an amendment to the related prohibited transaction class exemption. The agenda shows that EBSA plans to issue an Interim Final Rule by September 2021. 
  • Abandoned Plan Program. Following a review of agency priorities, EBSA says that it is returning an entry to its semiannual regulatory agenda that seeks to permit bankruptcy trustees to use the Department’s Abandoned Plan Program to terminate and wind up the plans of sponsors in liquidation under Chapter 7 of the U.S. Bankruptcy Code. EBSA had withdrawn this entry from the semiannual regulatory agenda in September 2019 due to agency reprioritization. The updated agenda now shows that the DOL plans to issue an interim final rule by November 2021.  

It’s important to note that the dates listed in the semiannual Regulatory Agenda are target dates for release and are subject to change.