The Labor Department is proposing to extend the applicability date of the fiduciary regulation by a mere 60 days – while taking (just) the next 15 days to collect comments on that proposal. But that’s not all.
With regard to President Trump’s Feb. 3 Executive Memorandum that directed the Labor Department to essentially reconsider the impact of the fiduciary regulation on investors, retirees, the industry, advice access, pricing and litigation, the Labor Department will be seeking comments for the next 45 days, according to a proposed rule released March 1.
In explaining the rationale behind the modest 60-day extension, the Labor Department notes that there are (only) approximately 45 days until the applicability date of the final rule and prohibited transaction exemptions (PTEs), and, in what may be the understatement of the year, that they believe it may take more time than that to complete the examination.
The proposal notes that, absent an extension in the applicability date, if the examination prompts the Department to propose rescinding or revising the rule, affected advisers, retirement investors and other stakeholders might face two major changes in the regulatory environment rather than one. “This proposed 60-day extension of the applicability date aims to guard against this risk,” the Labor Department noted, going on to say that the extension makes it possible for them to take additional step – completing its examination, implementing any necessary additional extension(s) and proposing and implementing a revocation or revision of the rule – without the rule becoming applicable beforehand.
As for the additional period to reconsider the impact of the fiduciary regulation, the extension proposal hints at the size and scope of what that inquiry could entail, including the uncertain nature of the impact that the delay itself could have, “as some variation can be expected in the pace at which firms move to comply and mitigate advisory conflicts and at which advisers respond to such mitigation and adjust their recommendations to satisfy impartial conduct standards.” The Labor Department acknowledges that “the economic effects may be partially dependent on what action the Department ultimately takes, and in the shorter term, what the public anticipates the Department may do.”
As part of its comment-seeking, the Labor Department specifically noted a desire to receive data on compliance activities already undertaken (sunk costs), and the potential change in start-up costs that would result from a delay in the applicability date. The Labor Department notes that, beyond start-up costs, the delay “would likely relieve the industry of relevant day-to-day compliance burdens.”
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It also invited comments as to whether the “benefits of the proposed 60-day delay, including the potential reduction in transition costs should the Department ultimately revise or rescind the final rule, justify its costs, including the potential losses to affected retirement investors.” It also invited comments on whether it should “delay applicability of all, or only part, of the final rule’s provisions and exemption conditions.” As an example, it cited that they could delay things like notice and disclosure provisions, but permit the impartial conduct standards set forth in the exemptions to become applicable on April 10, as well as comments on whether a different delay period would best serve the interests of investors and the industry.
The proposed rule follows a submission to the Office of Management and Budget (OMB) on Feb. 9.
Over the past couple of weeks, OMB held meetings with a number of constituencies, many of which have been strong advocates for the fiduciary regulation, apparently to ascertain whether the proposed delay might constitute a potential violation of the federal Administrative Procedures Act, and thus trigger lawsuits challenging it. Meanwhile, litigation proceeds in various federal court districts.
Looks like we’ll all be busy for the next couple of weeks.