Fiduciary Rule in Limbo?

Experts weigh in on the likelihood of a repeal or delay of the new fiduciary rule under a Trump administration -- and what it means for employers.

Monday, November 28, 2016
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President-elect Donald Trump has made it crystal clear that his Republican administration is looking to disrupt and/or dismantle the bulk of workplace rules and regulations put forth by President Barack Obama's Department of Labor.

Nestled among major targets such as the Affordable Care Act, the new overtime rule and higher Occupational Safety and Health Administration fines are steps to potentially wipe out DOL actions connected to retirement plans. According to employment law and investment experts, the most high-profiled of those is the DOL's so-called "fiduciary rule," which takes effect April 10, 2017. The rule redefines and broadens who is considered a "fiduciary" of an employee benefit plan by providing investment advice to a plan or its participants or beneficiaries under the Employee Retirement Income Security Act. The goal is to save employees with defined-contribution accounts, such as 401(k) plans, billions of dollars annually by eliminating conflict of interest among advisors, according to The White House Council of Economic Advisers.

"The rule sought to eliminate conflicts of interest in advising," says San Francisco-based Michael Lotito, a shareholder and co-chair of the Workplace Policy Institute at Littler. "A handful of lawsuits have been filed by trade groups challenging the fiduciary rule on multiple legal grounds, including First Amendment, due process and unauthorized rulemaking theories."

So will the new administration eliminate the fiduciary rule, and if it does, what will it mean for HR and compliance?

Lotito, who co-authored a post-election analysis of the impact of a Trump election victory on employment law and compliance, explains that the Republican Party platform strongly opposed the rule, so a Trump administration is not expected to defend it, either in or out of court. (A story posted on reports that House GOP members have included the fiduciary rule on its "wish list" of Obama initiatives to repeal within the first 100 days of a Trump presidency.)

Joseph Urwitz, a partner in McDermott Will & Emery's Boston office, says that, while it's not possible to predict the future, the new Congress and president may overhaul, eliminate or at the very least delay implementation of the fiduciary rule. He notes that during the 2016 presidential campaign, Anthony Scaramucci, one of President-elect Trump's campaign advisers, stated that a Trump administration would repeal the rule, saying "it could be the dumbest decision to come out of the U.S. government in the last 50 to 60 years."

Still, Urwitz says, "completely eliminating it could be tricky, as many major financial institutions most affected by its changes have already begun updating their systems and documents in light of its soon-approaching April 10, 2017 applicability date."

Urwitz points out that changes to the rule or an implementation delay may not have a particularly great impact on HR professionals, as most providers of investment advice to qualified plans are ERISA fiduciaries under either the new fiduciary rule or the regulations in effect prior to the rule. For financial advisors who are subject to ERISA's fiduciary rules under the new guidance but not under the old (such as certain broker-dealers and mutual-fund representatives), a repeal of the rule (or a delay in its implementation) would likely require reworking agreements entered into in anticipation of the applicability date.

"Most of this renegotiation will likely be addressed by the sponsor's in-house or outside counsel," Urwitz says. "One thing HR professionals should do is follow developments with the fiduciary rule and keep track of which service providers are ERISA fiduciaries and what those providers' obligations to the sponsor's plans are."

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William Charyk, president of the Institutional Retirement Income Council in Washington, says he doesn't believe the fiduciary rule is an issue President-elect Trump had thought much about, but since it could interfere with a free and open exchange of information and is expensive to implement, he's likely to view it as being bad for free commerce (and as such, among DOL programs that would be affected). Consequently, he says, a Trump administration might at the very least put a freeze on it to delay the implementation date.

"If that happens," he says, "you will probably get a curious outcry from the industry, which has sunk a lot of money into this by getting in compliance."

But even if it is delayed, he says, some major vendors in the space already have been rolling out compliance tools and programs for the April 10 deadline and want to show they are on top of the situation. If it gets delayed indefinitely, for example, investment firms may get some benefit in terms of adoption because the new consumer protections in place make them a good entity to do business with, even if the fiduciary rule never becomes a reality.

"Plan sponsors and employers [that] have been getting a lot of summaries and information about the new fiduciary rule over the past year could be confused by receiving new, contradictory newsletters and information from those advisors [were changes to be made]," he says, "so they may feel a bit of relief if there is a deferment of the rule."

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