The U.S. Department of Labor’s (“DOL”) April 6, 2016 new fiduciary rule (“Fiduciary Rule” or “Rule”) is under attack. Although the Rule became effective on June 7, 2016, it has an April 10, 2017 applicability date. With the Republicans now occupying a majority in the House of Representatives and Senate and Donald Trump’s inauguration as the 45th President, no certainty exists as to the occurrence of the Rule’s pending applicability date.
The Executive Branch has already issued responses to the Rule. On January 20, 2017, the White House issued a Memorandum from Reince Priebus to the heads of executive departments and agencies requesting a 60-day delay, in part, for the effective date of regulations that have been published in the Office of the Federal Register but have not taken effect. The Fiduciary Rule fits squarely within this scenario as the enforcement aspect of the Rule, and exemptions, have not gone into effect yet.
Additionally, Trump has nominated Andy Puzder (who is a proponent of less labor regulation) to serve as the director of the DOL. As DOL director, Puzder may modify or draft guidance documents for the DOL’s Employee Benefits Security Administration (“EBSA”), slow or prevent EBSA’s enforcement of the Fiduciary Rule, direct EBSA’s priorities away from the Fiduciary Rule, and reduce EBSA’s budget. Additionally, given the fierce opposition to the Rule, Trump may likely take specific executive action that delays the applicability date or restricts enforcement of the Rule.
Under the leadership of a Trump-nominated director, the DOL may re-open the notice and comment period for the Fiduciary Rule to allow time for the new DOL director to review the Rule for questions of fact, law, or policy. While guidance exists on the length of notice and comment periods, no specific rules as to the length exist, thus this period could last months. The DOL may further propose a new rule to delay the applicability date of the Fiduciary Rule. Under this agency rulemaking scheme, the Fiduciary Rule’s applicability date could be indefinitely delayed or simply never triggered.
Legislators have already responded to the Fiduciary Rule. In April of 2016, Republican Representatives introduced a Resolution in Congress to repeal the Fiduciary Rule that was subsequently vetoed by President Obama two (2) months later. In January of 2017, Congressman Joe Wilson (R-S.C.) introduced the Protecting American Families’ Retirement Advice Act that proposes to delay the applicability date of the Fiduciary Rule for two (2) years. This new bill has been picking up traction as it moves through the House. Congress may also pass a defunding bill, reducing the budget for the DOL to enforce the Rule which would make it largely symbolic.
With the various options available through White House, agency, and legislative action, several vehicles are available for a Fiduciary Rule overhaul. These options can be used independent of one another or in conjunction with one another. In anticipation of the Rule’s April 10, 2017 applicability date, financial and insurance industries have already begun implementing compliance changes. Regardless of the uncertainty surrounding the Rule, one thing for certain is that the role of a fiduciary is under scrutiny.