By Monte Schatz
There have been a significant series of regulatory announcements and rulings related to the fiduciary duty and its application to employee benefit plans. The final fiduciary duty rule became effective on June 7, 2016, and has an applicability date of April 10, 2017. The President by Memorandum to the Secretary of Labor directed the Labor Department to examine the impact of the fiduciary duty rule. On March 2nd the DOL published 82 FR 12319 seeking public comments about questions raised in the Presidential Memorandum. The March 2nd notice also provided that a 60-day delay in implementation would be effective on the date of publication of a final rule
The Principal Transactions Exemptions and the accompanying Best Interest Contract provisions, included as part of the fiduciary duty rule, also have an applicability date of April 10, 2017, with a phased implementation period ending on January 1, 2018. The BIC Exemption effectively states that the fiduciary advisor must sign a “Best Interests Contract” (BIC) with the client, stipulating that the advisor will provide advice that is in the Best Interests of the client. The Principal Transactions Exemption allows compensation for certain transactions by certain broker-dealers, insurance agents, and others that will act as investment advice fiduciaries that would otherwise violate prohibited transaction rules that trigger excise taxes and civil liability.
Most investment industry groups’ concerns regarding any non-compliance during a “gap period” of the financial fiduciary rule focused on Department of Labor and its potential civil liability enforcement provisions as outlined under ERISA. Additional concerns were raised concerning Internal Revenue Service enforcement provisions found in Internal Revenue Code §4975 prohibited transaction rules that provides for the imposition of excise taxes for violations of that rule.
As a result of delays of the Fiduciary Standard rules, the Department of Labor published Field Assistance Bulletin (FAB) 2017-01. FAB 2017-01 provides that, to the extent circumstances surrounding its decision on the proposed delay of the April 10 applicability date give rise to the need for other temporary relief, including retroactive prohibited transaction relief, the DOL will consider taking such additional steps as necessary with respect to the arrangements and transactions covered by the DOL temporary enforcement policy and any subsequent related DOL enforcement guidance.
In Announcement 2017–4 the IRS stated, Because the Code and ERISA contemplate consistency in the enforcement of the prohibited transaction rules by the IRS and the DOL, the Treasury Department and the IRS have determined that it is appropriate to adopt a temporary excise tax non-applicability policy that conforms with the DOL’s temporary enforcement policy described in FAB 2017-01. Accordingly, the IRS will not apply § 4975 and related reporting obligations with respect to any transaction or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.
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