U.S. Labor Department headquarters in Washington, D.C. (Michael A. Scarcella/ ALM Media)
The Office of Management and Budget approved on Monday the 18-month delay for the more onerous provisions of the Labor Department’s fiduciary rule.
The OMB approval, which usually takes 90 days, took less than a month.
The office listed its action as “Consistent with Change,” which means OMB “had to make some changes as a result of the review, but not with the length of the extension because the title is the same,” says Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles. OMB likely had to “make changes to the economic analysis and maybe the length of the comment period.”
The delay must now be finalized by the Labor Department.
Steve Saxon, partner at Groom Law Group, said that with the OMB review finalized, the Labor Department will now release a proposed rule in the Federal Register with a comment period of no longer than 30 days.
“We do expect the delay to go through,” Saxon told ThinkAdvisor on Tuesday. “We think [Labor is] going to propose the extension and do a very short comment period and then approve it.”
And firms are waiting eagerly for that approval.
“People need confirmation that the delay will go through so they can hold off on the buildout of their systems and software and the like, which is very expensive,” Saxon said. “They don’t want to do that if there are going to be changes to the rule … recordkeepers and other retirement service providers are desperate for confirming of the delay.”
Labor Secretary Alexander Acosta told a Minnesota court on Aug. 9 that the department had filed with OMB to delay the applicability date on three of the rule’s exemptions from Jan. 1, 2018 to July 1, 2019.
Labor proposed amendments to three exemptions, which were all approved by OMB:
► The best-interest contract exemption, which opponents of the rule argued is the contract that would spark a slew of class-action lawsuits;
► Class exemption for principal transactions in certain assets between investment advice fiduciaries and employee benefit plans and IRAs; and
► Prohibited Transaction Exemption 84-24 for certain transactions involving insurance agents and brokers, pension consultants, insurance companies, and investment company principal underwriters.
“DOL is cognizant that the industry needs certainty on whether the deferred requirements will commence on Jan. 1,” said George Michael Gerstein, a lawyer with Stradley Ronon, a law firm in Washington that helps financial firms deal with regulators, in an email. “At this point, clarity is paramount.”