Outcome for DOL Rule?
Though the Tao warns that those who know don’t talk, and those who talk don’t know, it has not stopped a lot of very smart people from weighing in on what will be the most likely outcome for the DOL rule. Bottom line is that everyone is acting as if it will go into effect April 10, 2017 which may mean that the intent of the rule will be implemented even if it’s repealed. So what’s likely to happen?
Fred Reish, noted ERISA counsel at Drinker Biddle provides three scenarios for the rule:
1. Repeal
2. As is
3. Modification
He notes that the only way the rule goes into effect on April 10, 2017 is under scenario #2 and, if delayed, likely until the end of 2017 or April 10, 2018. If modified, Reish thinks that the Best Interest Contract Exemption (BICE) will be most affected.
Though some have wondered whether the SEC should have taken the lead on the fiduciary rule, that’s not likely to happen now with the Dodd-Frank bill under pressure and changes at the SEC with the new administration. The SEC may also not be able to handle annuities and prohibited transactions in ERISA plans but seems more capable to deal with IRAs than the DOL.
Another lawyer from Drinker notes, “It’s much easier to waylay a rule that has not yet become applicable, than to unwind something that’s already in place.”
Legal challenges to delay or stop implementation of the bill don’t seem likely either – a DC Federal Judge refused attempts by the National Association for Fixed Annuities (NAFA) to obtain an injunction as did a federal judge in Kansas in another case.
With almost all broker dealers, RIAs and record keepers acting as if the rule will go into effect as is on April 10, 2017, the intent of the rule may be implemented even if the rule is repealed. Most experts have more issues with the BICE than the rule – who wants to argue against requiring financial professionals to act in their client’s best interest – and many realize that the growth of IRAs means that investors need greater protection.
So plan sponsors should act as if the rule will go into effect and because they do not need to take immediate action anyway, they have the luxury of waiting to see what their providers and advisors do and then act accordingly.
