A 2015 report by the White House Council of Economic Advisors found that retirement accounts were reduced $17 billion a year because of biased advice from financial advisors. The Department of Labor (“DOL”) Fiduciary Rule, set to be enacted this year, seeks to eliminate these losses by placing a fiduciary duty on financial professionals to put the interest of their clients first and eliminate conflict of interest trades – at least when it comes to pre-tax retirement accounts. However, the Rule, previously set to go into effect on April 10, 2017, is facing probable delay and possible rescission. This article provides background on the proposed Fiduciary Rule, discusses how it might impact company Employee Retirement Income Security Act (“ERISA”) plans and provides insight to the Trump Administration’s delay on the rule.
Potential Impact on ERISA Plans
While the Fiduciary Rule will not require most employers to make any changes on or before April 10, 2017 to be compliant, the ripple effects of the Rule will almost certainly result in new contracts with retirement account providers at higher costs as financial institutions adopt this new, heightened relationship with investors and seek to avoid violations of (“ERISA”). Plan sponsors should also expect to see a flood of additional paperwork disclosing conflicts of interests and payments made to those investing for the plan. Plan sponsors should take time to review the paperwork and determine what is in the best interests of its investing employees. Unless the plan sponsor is large enough to have an ERISA specialist in-house, experts recommend retaining an ERISA attorney or consultant to carefully vet any new contracts. The plan sponsor must then monitor the vendor to ensure that it complies with requirements under the fiduciary standard.
Re-defining who is a Fiduciary
The Fiduciary Rule re-defines who is a “fiduciary” of an employee benefit plan under section 3(21)(A)(ii) of ERISA and section 4975(e)(3)(B) of the Internal Revenue Code. The Rule expands fiduciaries to include persons who provide investment advice or recommendations not only for a fee, but also for other compensation with respect to assets of a pre-tax retirement plan or IRA. As a “fiduciary,” financial professionals are legally obligated to put retirement investors’ interests first, rather than investing in a fund that benefits the financial professional (by, for example, yielding a higher commission). Under the Rule, these fiduciaries would be required to disclose any conflict of interests (such as the professional’s incentive to invest in a fund because s/he will receive a higher commission) and any commissions or fees paid.
Background of the Fiduciary Rule and A Possible Trump Administration Delay
The DOL began attempts to regulate retirement accounts in favor of investors in 2010 by proposing a rule to limit conflicts of interest for financial advisers working on retirement accounts. This short-lived proposal was withdrawn a year later. Before the end of his presidency, however, President Obama called for the proposal of the current Fiduciary Rule by the DOL in 2015. The final Rule was released in April, 2016, and scheduled to begin phasing into the marketplace on April 10, 2017, until fully enacted on January 1, 2018.
Shortly after entering into office, President Trump called for the DOL to prepare a new, updated economic and legal report on the Fiduciary Rule to determine whether: (1) the application of the rule is likely to harm investors by limiting access to certain retirement savings offerings or related financial advice; (2) the anticipated application of the rule has disrupted the retirement services industry in a way that could adversely affect investors or retirees; and (3) the rule will result in an increase of litigation and/or prices investors and retirees will pay to gain access to retirement services.
Critically, if the DOL analysis finds in the affirmative as to any of the above three categories of concern, or that the current Rule would impede the Administration’s priority to “empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses,” then the DOL must prepare and publish for public comment a proposed rule rescinding or revising the current Fiduciary Rule.
Likely driving the analysis called for by the Trump Administration is the effect the Fiduciary Rule will have on the financial industry’s compensation structure. Some estimate that the conflicts of interest regulated by the Fiduciary Rule could cost financial institutions $2.4 billion per year in lost commissions and fees on pre-tax retirement accounts.
Regarding the concern over litigation, the Fiduciary Rule has notably been upheld at the trial court level in three cases, indicating that the Rule is enforceable as written.
These potential delays, revisions, and rescission of the Fiduciary Rule will result in confusion for financial professionals who, for the past year, have been preparing to comply with the current Rule. The DOL attempted to address these concerns in a Field Assistance Bulletin No. 2017-01, however, this bulletin does little to clarify when the rule will go into effect, instead repeatedly relying upon a belief that the DOL will issue a decision on the enactment of a 60-day delay before April 10, 2017. The short-term outcome is likely an enactment of the 60-day delay requested by the DOL, and potentially even further delay as the DOL completes a report for the White House. During these delays, investors can plan to see business as usual, including ongoing expenses to retirement accounts arising from advice that might likely be barred or required to be disclosed under the DOL Fiduciary Rule.
For a deeper look at the DOL’s Fiduciary Rule, see the department’s Conflict of Interest FAQ’s.
 “FACT SHEET: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Backdoor,” White House Press Release, February 23, 2015. //obamawhitehouse.archives.gov/the-press-office/2015/02/23/fact-sheet-middle-class-economics-strengthening-retirement-security-crac
 On March 1, 2017, the DOL issued a proposed rule to delay the applicability date for the Fiduciary Rule 60-days, until June 9, 2017, likely because the DOL has not yet published its updated analysis of the Rule.
 David Tobenkin and Stephen Miller, CEBS, “How the Fiduciary Rule Affects Retirement Plan Sponsors: New Rule Will Impact Employer’s Compliance Obligations and Costs,” Society for Human Resource Management, April 8, 2016. https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/fiduciary-rule-plan-sponsors.aspx
 Federal Register, Vol. 81, No. 68, Friday April 8, 2016. http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=28806
 “Presidential Memorandum on Fiduciary Duty Rule”, White House Press Release, February 2, 2017. https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-memorandum-fiduciary-duty-rule
 DOL Fiduciary Rule Explained as of March 29, 2017, Investopedia, March 29, 2017.
 See Market Synergy Group, Inc. v. US Dep’t of Labor, et al., 2017 BL49586 (D.Kansas February 17, 2017); Chamber of Commerce of US vs. Hugler, et al., 2017 BL38365 (N.D. Tex February 8, 2017); Nat’l Assoc. Fixed Amenities v. Perez, et al., 2016 BL 369523 (D.D.C. November 4, 2016).