New White House memorandum likely to result in delay of fiduciary rule


By Brandon P. Long

Last Friday, President Trump issued a memorandum for the U.S. Secretary of Labor that seems likely to result in the delay of key regulations issued under the Obama administration, which are currently set to become applicable on April 10, 2017.

Under the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code, a person is a fiduciary to a qualified retirement plan (such as a 401(k) plan) or an individual retirement account (IRA) to the extent that the person engages in certain activities, including rendering “investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so.” To the extent someone is a fiduciary, ERISA safeguards plan participants by imposing standards of care and undivided loyalty on plan fiduciaries and by holding fiduciaries accountable when they breach those obligations.

In April 2016, the Obama administration published final regulations that broadly expanded the definition of “investment advice.” The effect of these regulations is to expand the advice relationships and activities that result in fiduciary status. For example, under the new regulations, giving a retiring 401(k) plan participant advice for a fee about whether they should roll their money from their employer’s plan into an IRA would be a fiduciary act and require the person giving the advice to act in the best interest of the participant. Banks, financial institutions, trust companies and many others in the financial services industry have spent millions of dollars getting ready to comply with the new regulations. Employers and retirement plan committees have also spent a great deal of time, especially this past year, making sure they understand how the new regulations will impact their retirement plan and plan participants.

President Trump’s memorandum issued last Friday directs the Secretary of Labor to examine the Obama regulations to determine whether they may adversely affect the ability of Americans to gain access to retirement information and financial advice. President Trump directed the Secretary of Labor to undertake an economic and legal analysis concerning the likely impact of the Obama regulations that will include whether the new regulations have harmed or are likely to harm investors due to a reduction of Americans’ access to retirement savings information or related financial advice.

If the Secretary of Labor determines that the rules violate any of the specified considerations or are otherwise inconsistent with the Trump Administration’s priorities, the Secretary is directed to publish for notice and comment a proposed rule rescinding or revising the regulations.

After receipt of President Trump’s memorandum on Friday, acting Secretary of Labor Edward Hugler issued the following statement: “The Department of Labor will now consider its legal options to delay the applicability of the date as we comply with the President’s memorandum.”

Given these activities on Friday, it seems very likely that the regulations that are set to become applicable in April will ultimately be delayed, especially given the outcry in the past year from the financial services industry claiming that the regulations will limit the ability of individuals to receive investment information (because of fear that providing information to individuals might create greater liability).