November 2017, Federal Register
Field Assistance Bulletin No. 2017-03
August 2017, EBSA
Presidential Memorandum on Fiduciary Duty Rule
February 2017, The White House
NAIC Comment Letter
July 2015, NAIC
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Director, Government Relations
Last Updated 12/6/17
Issue: In April 2016, the U.S. Department of Labor (DOL) finalized regulations broadening its definition of fiduciary investment advice under the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code. These regulations will expand the scope of who is considered a fiduciary to ERISA retirement plans and IRAs, which will include a broader set of insurance agents, insurance brokers, and insurance companies. As such, it is expected to have far reaching implications for the overall retirement marketplace.
Overview: The DOL’s 1975 regulations defined investment advice under a five-part test. Investment advisors that met each of these five requirements for each instance of advice were considered a fiduciary. The final rule expands the investment advice definition by replacing the five-part test with language that describes the activities and communications that, if done for a fee or other compensation, would constitute fiduciary investment advice.
Additionally, through the rule the DOL has made certain amendments to and partially revoked Prohibited Transaction Exemption (PTE) 84-24, which has provided an exemption for a plan’s payment of sales commissions to insurance agents, brokers, and insurers in connection with a plan’s purchase of insurance and annuity contracts and mutual fund shares. PTE 84-24 will still be available, but will only cover certain insurance products.2 Advisors who sell variable annuities and indexed annuities will need to satisfy the conditions of the “Best Interest Contract Exemption” (BICE),3 rather than PTE 84-24 that they were previously allowed to rely on. The BICE requires advisers to adhere to impartial conduct standards to give advice in the best interest of the client, receive no more than reasonable compensation and make appropriate disclosures, among other requirements. Advisors selling non-annuity insurance contracts and annuities that satisfy the DOL’s definition of a “Fixed Rate Annuity Contract“4 will be able to rely on PTE 84-24.
Status: The DOL finalized its regulations in April 2016. As part of the rulemaking, the NAIC submitted a comment letter in July 2015 and met with DOL officials to underscore the importance of operationalizing a number of the proposed rule's provisions and providing clarity in the rule to limit the potential for unintended consequences, confusion or litigation. The first phase of implementation was set to be applicable in April 2017. However, the incoming Trump administration issued a Presidential memorandum in February, 2017 ordering the DOL to reevaluate the rule. As a result, implementation was pushed back to June 9, 2017 with full implementation expected by January 1, 2018. In October 2017, the DOL filed a rule with the Office of Management of Budget (OMB) to delay the fiduciary rule's effective date by another 18 months to July 1, 2019. The expanded definition of fiduciary is currently in effect, along with new "impartial conduct standards." However, exemptions such as the BICE and any changes to PTE 84-24 have been delayed.
The NAIC will continue to monitor the DOL's findings and actions, including any potential move to revoke the rule or make significant changes to it as well as assess the implications of any changes to the rule's scope on the insurance marketplace and consumers. Additionally, the Annuity Suitability (A) Working Group is charged with updating the Suitability in Annuity Transactions Model (#275).