EBSA extends temporary enforcement policy on advice fiduciaries

The U.S. Department of Labor's Employee Benefits Security Administration extended a temporary enforcement policy concerning advice fiduciaries until Jan. 31.

The policy was set to expire Dec. 20. A group of nine trade associations including the Investment Company Institute, the Securities Industry and Financial Markets Association and the Insured Retirement Institute, in a September letter to Ali Khawar, acting assistant secretary for the EBSA, urged Mr. Khawar to extend the policy.

The Labor Department said in a news release Monday that it "understands that the Dec. 20 expiration date of the current transitional relief poses practical difficulties for financial institutions. These institutions have expressed specific concern that they would incur significant additional costs to distribute disclosures because Dec. 20 does not align with their regular distribution cycle for disclosures."

Under the Trump administration last December, EBSA had finalized a prohibited transaction exemption — 2020-02 — that permits investment advice fiduciaries to receive compensation for more types of guidance, including advice to roll over assets from a retirement plan to an individual retirement account. The Biden administration allowed the exemption to take effect in February.

EBSA also noted in the news release that "it will not enforce the specific documentation and disclosure requirements for rollovers in PTE 2020-02 through June 30, 2022. However, all other requirements of the exemption will be subject to full enforcement on Feb. 1, 2022."

"The class exemption provides meaningful protections for individual investors, and we continue to emphasize the importance of compliance," Mr. Khawar said in the release. "Based on concerns raised, we've concluded that providing additional transition relief for financial institutions that are working in good faith to build systems to comply with the exemption conditions is appropriate."

In 2016, the Labor Department under the Obama administration finalized what's commonly known as the fiduciary rule, which broadened the definition of when a person or entity was taking on fiduciary responsibilities and replaced the five-part test used to determine whether an investment professional or financial institution is a fiduciary. But in 2018, a three-judge panel at the New Orleans-based 5th U.S. Circuit Court of Appeals vacated the rule in a 2-1 decision because it said the department exceeded its legal authority.

The Labor Department then issued Field Assistance Bulletin 2018-02, which said the department would not pursue prohibited transactions claims against investment advice fiduciaries who are working "diligently and in good faith to comply" with the impartial conduct standards for transactions that would have been accepted under exemptions struck down in court.

The agency announced plans in June to revisit the fiduciary rule.