For three years, there was relative peace in the land of Department of Labor guidance. DOL investigations continued apace and memories of the 2015-2017 battles over the DOL fiduciary rule began to fade. Some in the retirement industry even began to believe that the future of guidance lay mainly at the SEC rather than the DOL.
Then came the summer of 2020. Starting in early June and running at a breakneck pace through August, the DOL struck back in what may be one of its most productive guidance periods ever.
In what began to feel like a standard weekly process, the department issued new guidance on a wide range of issues—from the “undead” fiduciary rule and a proposed new exemption bringing memories of the Best Interest Contract Exemption (BICE), to proposed guidance that could put an end to the yo-yo approach to guidance on environmental, social and governance (ESG) investing, to proposed guidance on lifetime income disclosures, to rules on how to register to offer a pooled employer plan (PEP).
What does all this mean for an advisor? Here’s the crib sheet version.
Rise of the Fiduciary Rule
The pre-2016 fiduciary rule his risen from the dead and is formally being reinstated. This in itself is no big shock. However, as part of the reinstatement of the fiduciary rule, the DOL introduced a new proposed exemption that would replace the highly adaptable transition relief issued in 2017 with an exemption that imposes potentially significant additional procedural requirements (and limitations) on advisors—especially as it relates to rollovers. In addition, the rule’s preamble (the DOL’s introduction and explanation) contains a lot of interpretation of what the “old” (now new!) fiduciary rule meant—and not everyone agrees with it.
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Return of ESG
Over the past 26 years, since the Clinton administration, Democratic and Republican administrations have moved back and forth on their position on the role of ESG investing. In recent years, ESG has started to find increased traction in parts of the advisor community. However, in proposing guidance on ESG, the DOL added what could be seen as even broader “process steps” that could require more vetting by advisors and could directly impact the use of investment products where an advisor also plays a role.
Lifetime Income Disclosures Awaken
In 2013, the DOL published an advance proposal of guidance requiring lifetime income disclosures for individual account defined contribution plans. It was never finalized. In 2019, DOL was directed to provide guidance on lifetime income disclosures as part of the enactment of the SECURE Act. The DOL has now proposed lifetime income disclosure guidance that provides many disclosure safe harbors—but not for all products. Notably, this safe harbor guidance also does not protect future growth in accounts. For advisors, this guidance structure may affect how they frame their wellness and decumulation advice in the future.
PEPs Awaken
After becoming law in the SECURE Act, pooled employer plans will “go live” in 2021. Many advisors are considering their role and potential offerings in this new part of the retirement ecosystem. The initial piece of guidance issued by DOL focused on how to register as a pooled plan provider (PPP). This proposed guidance requires significant disclosures and ongoing updates to DOL. Importantly, this registration is required before “marketing” a PEP. Advisors are now working rapidly to consider and adapt to this proposed guidance.
Much like Star Wars, the DOL’s guidance during the summer of 2020 was a series of blockbuster events. However, the next trilogy or franchise reboot could be just around the corner. Regardless of whether there is a second Trump term or a Biden administration, additional change is likely in the wings—and advisors will need to adapt to it.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the latest issue of NAPA Net the Magazine.
