DOL to Withdraw, Re-Propose Fiduciary Regulation
Key Development: Delays an anticipated year-end release of a final regulation that would have updated and expanded the 1975 definition of an ERISA fiduciary.
Potential Impact: A new round of proposed rulemaking will give practitioners an opportunity to simultaneously review a re-proposed regulation and proposed exemptions to the regulation.
By Florence Olsen
The Department of Labor intends to withdraw and re-propose a proposed regulation that would have expanded the definition of a fiduciary to include people or entities giving investment advice to plan participants, Phyllis C. Borzi, assistant secretary of labor for DOL's Employee Benefits Security Administration, announced Sept. 19.
Borzi said DOL remains committed to strong consumer protections in the regulation but also is committed to conducting a more thorough economic analysis of its impact, especially on fee practices in the individual retirement account industry.
“Many of the people we have met with, particularly on the IRA side, have given us a lot of information that, honestly, we didn't have when we made the original proposal, and we need time to digest and integrate it into the structure of the rule,” Borzi said in a conference call with reporters.
Borzi said the department will not be issuing a re-proposed regulation until sometime early in 2012. One of the objectives in re-proposing the rule will be to have proposed class exemptions to the fiduciary regulation ready for release when the regulation is re-proposed, she said.
Borzi said that White House officials backed the department's decision to withdraw and re-propose the pending regulation, which DOL had expected to release sometime near the end of the year.
The department's proposed regulation (RIN 1210-AB32) would have revised and expanded the definition of the term “fiduciary” under ERISA (28 HRR 1129, 10/25/10).
DOL anticipates re-proposing the regulation to clarify that fiduciary advice is limited to individualized advice directed to specific parties, Borzi said. Revisions also will address concerns about the effect of the regulation on routine appraisals and arm's-length commercial transactions, such as swap transactions, she said.
Anticipated prohibited transaction exemptions will address current fee practices of brokers and advisers and clarify that long-time DOL exemptions that allow brokers to receive commissions in connection with mutual funds, stocks, and insurance products will still apply, Borzi said.
The volume of comments DOL received on the proposed regulation indicated that an extensive rewriting of the original proposal would be necessary, Kent A. Mason, a partner at Davis & Harman in Washington, D.C., told BNA Sept. 19. “People needed the opportunity to see what [DOL] replaced it with and to comment on that,” he said.
Bradford P. Campbell, former assistant secretary of labor for EBSA in the George W. Bush administration, told BNA Sept. 19 that DOL made the right decision about withdrawing and re-proposing the fiduciary regulation.
Campbell, now of counsel with Schiff Hardin in Washington, D.C., said that “rushing to a final rule” would have been a bad regulatory approach and would have embroiled the department in extensive litigation.
By Florence Olsen
Text of a news release announcing DOL's intent to re-propose the regulation is at http://www.dol.gov/ebsa/newsroom/2011/11-1382-NAT.html . Text of Rep. Frank's letter is at http://op.bna.com/pen.nsf/r?Open=foln-8lurnc .
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