Another change to proposed regulations under the Trump Administration, this time affecting Obama’s investor protection measure more commonly referred to as the fiduciary rule. Initially set to go into effect in April, the fiduciary rule was set to change the way advisers work with investors and provide advice. While proponents of the rule say that this is “putting the interests of Wall Street ahead of Americans,” the Trump Administration finds the rule as a “solution in search of a problem.”
Background: Proposed Changes to Fiduciary Rule
February 2, 2017: President Trump Proposes DOL Review
Announced on February 3, 2017 in a memorandum, President Trump put forward his administration’s reasoning behind the decision in an official memorandum, directing the following:
Section 1. Department of Labor Review of Fiduciary Duty Rule.
(a) You are directed to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. As part of this examination, you shall prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule, which shall consider, among other things, the following:
(i) Whether the anticipated applicability of the Fiduciary Duty Rule has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
(ii) Whether the anticipated applicability of the Fiduciary Duty Rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and
(iii) Whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.
(b) If you make an affirmative determination as to any of the considerations identified in subsection (a)-or if you conclude for any other reason after appropriate review that the Fiduciary Duty Rule is inconsistent with the priority identified earlier in this memorandum-then you shall publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law.
Sec. 2. General Provisions.
(a) Nothing in this memorandum shall be construed to impair or otherwise affect:
(i) the authority granted by law to an executive department or agency, or the head thereof; or
(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.
(b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations.
(c) This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.
(d) You are hereby authorized and directed to publish this memorandum in the Federal Register.
March 2, 2017: DOL Proposes 60-Day Delay of Fiduciary Rule
Following the orders of President Trump, the Department of Labor investigated the rule and its potential effects on consumer choice in savings, publishing the following in the Federal Register on March 2, 2017:
This document proposes to extend for 60 days the applicability date defining who is a “fiduciary” under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code of 1986 (Code), and the applicability date of related prohibited transaction exemptions including the Best Interest Contract Exemption and amended prohibited transaction exemptions (collectively PTEs) to address questions of law and policy.
The final rule, entitled Definition of the Term “Fiduciary;” Conflict of Interest Rule—Retirement Investment Advice, was published in the Federal Register on April 8, 2016, became effective on June 7, 2016, and has an applicability date of April 10, 2017. The PTEs also have applicability dates of April 10, 2017. The President by Memorandum to the Secretary of Labor, dated February 3, 2017, directed the Department of Labor to examine whether the final fiduciary rule may adversely affect the ability of Americans to gain access to retirement information and financial advice, and to prepare an updated economic and legal analysis concerning the likely impact of the final rule as part of that examination. This document invites comments on the proposed 60-day delay of the applicability date, on the questions raised in the Presidential Memorandum, and generally on questions of law and policy concerning the final rule and PTEs. The proposed 60-day delay would be effective on the date of publication of a final rule in the Federal Register.
Comments on the proposal to delay the applicability should be submitted by March 17, 2017, and comments on the examination described in the President’s Memorandum should be submitted on or before April 17, 2017.
The original regulation setting in motion the fiduciary rule has already been challenged in the courts by the U.S. Chamber of Commerce, Indexed Annuity Leadership Council, and American Council of Life Insurers with little avail. However, this delay will allow the DOL time to review and possibly modify or rescind the fiduciary rule as directed by the White House memorandum.
According to the National Law Review, the Office of Management and Budget changed the designation of “not economically significant” to “economically significant,” noting that the fiduciary rule regulation is one that is expected to have an impact of $100 million or more on the economy in at least one year.
The DOL estimated in its initial publication of the fiduciary rule that the rule could result in potential gains for IRA investors of $33-$36 billion over the first 10 years. Although the impact of a 60-day delay is uncertain, the DOL noted the 60-day delay “could lead to a reduction in those estimated gains of $147 million in the first year and $890 million over 10 years using a three percent discount rate.” However, the DOL also noted that the delay would avoid the potential of two significant regulatory changes that could disrupt the marketplace if the fiduciary rule takes effect on April 10, 2017 as planned and then subsequently is revised or rescinded as recommended in the White House memorandum.
Fiduciary Rule and HSAs
One of the less talked about parts of the Fiduciary Rule is the regulation’s effects on health savings accounts (HSAs). With HSAs becoming part of a larger retirement strategy, this potential rule will affect how people save for long-term healthcare costs.
For more information, see 4 Important Questions about HSAs under the New Fiduciary Rule on EBN, What the DOL Fiduciary Rule Does for HSAs on BenefitsPRO, and our overview of the Fiduciary Rule here.