Department of Labor Unveils Retirement Security Rule

The Department of Labor (DOL) announced its highly anticipated fiduciary rule, known as the Retirement Security Rule. This significant update to the regulatory landscape governing retirement investment advice was announced by Acting Secretary of Labor Julie Su. In the release, DOL stated that the rule will take effect on September 25, 2024.

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This unveiling comes on the heels of the recent clearance of the rule by the White House’s Office of Management and Budget on April 10, 2024, signaling an imminent release that stakeholders have been anticipating. Since this matter came to light, the Institute for Portfolio Alternatives has long been working with DOL on finding a common sense resolution.

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“Early on in the process, we expressed to the Department of Labor our concerns that the new rule would have unnecessary consequences for retirees and investors,” said Anya Coverman, President & CEO of the Institute for Portfolio Alternatives. “We have been concerned with the unprecedented speed of the process, given the ramifications we have projected this new rule to have. As the analysis of this latest rule continues, we look forward to participating in the ongoing dialogue to limit any uncertainty for firms, advisors and their clients.”

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While the final rules do expand the scope of fiduciary status in a manner that is inconsistent with ERISA’s text or history, the IPA’s comment letter succeeded in persuading DOL to make a number of significant changes:

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There is a delay at the Federal Register and it is in public inspection today, slated for publication tomorrow.

• The final rule largely eliminates the concern that wholesaling will trigger fiduciary status by expressly excluding interactions with non-ERISA fiduciary discretionary managers from the rule’s reach.
• The final rule expands the types of communications that are considered non-fiduciary “hire me” conversations. DOL expressly permits managers to tout their services and to provide information like industry trends, performance history, quality of services, and a detailed description of services. Additionally, DOL suggests that disclaimers may be more effective in the institutional market. We note that DOL continues to suggest that some “hire me” conversations will trigger fiduciary status, and it has included a new exemption related to RFI and RFP responses.
• The final rule did not include a provision that had been in the proposal, where DOL would have had the authority to deem a financial institution or individual ineligible to rely on certain exemptions. Ineligibility under the final rule is tied to final judgments and settlements.
• The final rule narrowed the scope of entities that can request the full scope of records to show compliance with PTE 2020-02. In the proposal, state regulators, employee organizations, and others could request those records. Under the final rule, financial institutions are required to provide those records on request to DOL or the Department of the Treasury.
• The proposal had a 60-day effective date. The final rule has a five-month effective date, with portions of the revised exemptions only taking effect an additional year later.

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The list of the final rules issued by DOL are listed here:

• Final Retirement Security Rule: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/final-rule.pdf
• PTE 2020-02: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/prohibited-transaction-exemption-2020-02.pdf
• PTE 84-24: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/prohibited-transaction-exemption-84-24.pdf
• Other PTE Amendments: https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/laws/erisa/retirement-security/prohibited-transaction-exemptions-75-1-77-4-80-83-83-1-and-86-128.pdf

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The Retirement Security Rule aims to redefine the parameters of ‘investment advice’ under ERISA ensuring that advisors prioritize the best interests of retirement plans and their participants. This issue will be front and center for the IPA membership at the upcoming IPASummit where we will host the Department of Labor’s Assistant Secretary of the Employee Benefits Security Administration Lisa Gomez.

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