Thefiduciary rule is not considered a "major" rule, meaning it has aneconomic impact of less than $100 million, according to Labor'sregulatory agenda. (Photo: Shutterstock)

The Employee Benefits Security Administration set aggressivegoals in its fall regulatory agenda, perhaps none as ambitious asadvancing a new proposed fiduciary rule by the end of the 2019.

EBSA issued a notice for public rule making on The FiduciaryRule and Prohibited Transaction Exemptions in its fall agenda,which was released in November.

According to a brief regulatory abstract, EBSA, the arm of theLabor Department that enforces the Employee Retirement IncomeSecurity Act, is "considering regulatory options" after theObama-era fiduciary rule was vacated by theFifth Circuit Court of Appeals in 2018.

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Labor has put a December deadline for its latest proposedversion of the fiduciary rule.

But according to the Office of Budget and Management website,the White House has yet to receive the proposal for review, whichwill make an end-of-year release of the proposal difficult tomeet.

"If they are going to release the proposal this year, it has toget to OMB—like now," said Kevin Walsh, a partner with the GroomLaw Group.

OMB took 30 days to review the Labor Department's proposed rulefor the electronic distribution of retirement plan documents, notedWalsh.

The fiduciary rule is not considered a "major" rule, meaning ithas an economic impact of less than $100 million, according toLabor's regulatory agenda.

Both the Obama-era fiduciary rule, and the Security and ExchangeCommission's Regulation Best Interest rule, were deemed major rulesgiven the broad economic impact of each.

"The idea that the proposal is not a major rule suggests it willhem closely to the original five-part test for fiduciary adviceunder ERSIA, or closely to Reg BI," said Walsh. "If they were toproduce something else, it would be tough to impose a whole newcompliance standard on retirement plan providers without triggeringthe $100 million threshold."

The Obama-era fiduciary rule expanded ERISA's "regular basis"requirement of the five-part fiduciary test to include one-timeadvice to roll 401(k) assets to an IRA.

"The Obama fiduciary rule was designed to close the gap onrollover recommendations," said Walsh.

While that expansion of the definition of fiduciary advice wasrescinded when the rule was vacated in 2018, the SEC addressed thequestion of rollovers in its Regulation Best Interest, whichapplies a higher standard of care to brokers advising retailinvestors, and includes one-time recommendations to roll retirementplan assets into an IRA.

Walsh cautions that Labor has wide-latitude in crafting a newfiduciary rule.

However, a reasonable inference from the proposal's non-majorstatus is that compliance with Labor's rule will be met if planadvisors are in compliance with the SEC's Reg BI, he said.

Labor may also clarify that non-fiduciary brokers not regulatedby the Investment Advisers Act of 1940 are distinct from fiduciaryadvisers defined by ERISA.

Whatever the Labor Department does ultimately propose, thechances of a rule ultimately being finalized wane with each passingday.

"If Labor is going to get this done during President Trump'sfirst term, the longer they take, the harder it is to get done,"said Walsh.

Beyond OMB's review, the proposal will most likely have to putup for public comment, and Labor will need adequate time to reviewthose comments, and make appropriate changes to a final rule.

If a new fiduciary rule is finalized in the last two months ofthe 116th Congressional session, it stands the threat of beingoverturned under the Congressional Review Act in the next Congress,should Democrats win control of the Senate.

READ MORE:

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