18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24), 56545-56560 [2017-25760]

Download as PDF Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations § 450.336 remove ‘‘MPO(s)’’ with and add in its place ‘‘MPO’’ wherever it occurs. ■ 13. Amend § 450.326 as follows: ■ a. Revise paragraph (a); and ■ b. In paragraphs (b), (j), and (p), remove ‘‘MPO(s)’’ and add in its place ‘‘MPO’’ wherever it occurs. The revision reads as follows: § 450.340 (a) The MPO, in cooperation with the State(s) and any affected public transportation operator(s), shall develop a TIP for the metropolitan planning area. The TIP shall reflect the investment priorities established in the current metropolitan transportation plan and shall cover a period of no less than 4 years, be updated at least every 4 years, and be approved by the MPO and the Governor. However, if the TIP covers more than 4 years, the FHWA and the FTA will consider the projects in the additional years as informational. The MPO may update the TIP more frequently, but the cycle for updating the TIP must be compatible with the STIP development and approval process. The TIP expires when the FHWA/FTA approval of the STIP expires. Copies of any updated or revised TIPs must be provided to the FHWA and the FTA. In nonattainment and maintenance areas subject to transportation conformity requirements, the FHWA and the FTA, as well as the MPO, must make a conformity determination on any updated or amended TIP, in accordance with the Clean Air Act requirements and the EPA’s transportation conformity regulations (40 CFR part 93, subpart A). * * * * * [Amended] 14. Amend § 450.328 by removing ‘‘MPO(s)’’ and adding in its place ‘‘MPO’’ wherever it occurs. ■ § 450.330 [Amended] 15. Amend § 450.330 in paragraphs (a) and (c) by removing ‘‘MPO(s)’’ and adding in its place ‘‘MPO’’ wherever it occurs. ■ § 450.332 [Amended] 16. Amend § 450.332 in paragraphs (b) and (c) by removing ‘‘MPO(s)’’ and adding in its place ‘‘MPO’’ wherever it occurs. pmangrum on DSK3GDR082PROD with RULES ■ § 450.334 [Amended] 17. Amend § 450.334 as follows: a. In paragraph (a), remove ‘‘MPO(s)’’ and add in its place ‘‘MPO’’; and ■ b. In paragraph (c), remove ‘‘MPO(s)’’ and add in its place ‘‘MPO’s’’. ■ ■ VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 [Amended] 19. Amend § 450.340 as follows: a. In paragraph (a), remove ‘‘or MPOs’’ wherever it occurs; and ■ b. Remove paragraph (h). ■ ■ § 450.326 Development and content of the transportation improvement program (TIP). § 450.328 [Amended] 18. Amend § 450.336 in paragraphs (b)(1)(i) and (ii) and (b)(2) by removing ‘‘MPO(s)’’ and adding in its place ‘‘MPO’’ wherever it occurs. ■ Title 49—Transportation PART 613—METROPOLITAN AND STATEWIDE AND NONMETROPOLITAN PLANNING 20. The authority citation for part 613 is revised to read as follows: ■ Authority: 23 U.S.C. 134, 135, and 217(g); 42 U.S.C. 3334, 4233, 4332, 7410 et seq.; 49 U.S.C. 5303–5306, 5323(k); and 49 CFR 1.91(a) and 21.7(a). [FR Doc. 2017–25762 Filed 11–28–17; 8:45 am] BILLING CODE 4910–22–P DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2550 [Application Number D–11712; D–11713; D–11850] ZRIN 1210–ZA27 18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016–01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016–02); Prohibited Transaction Exemption 84–24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84–24) Employee Benefits Security Administration, Labor. ACTION: Extension of the transition period for PTE amendments. 56545 Prohibited Transaction Exemption 84– 24 for the same period. The primary purpose of the amendments is to give the Department of Labor the time necessary to consider public comments under the criteria set forth in the Presidential Memorandum of February 3, 2017, including whether possible changes and alternatives to these exemptions would be appropriate in light of the current comment record and potential input from, and action by, the Securities and Exchange Commission and state insurance commissioners. The Department is granting the delay because of its concern that, without a delay in the applicability dates, consumers may face significant confusion, and regulated parties may incur undue expense to comply with conditions or requirements that the Department ultimately determines to revise or repeal. The former transition period was from June 9, 2017, to January 1, 2018. The new transition period ends on July 1, 2019, rather than on January 1, 2018. The amendments to these exemptions affect participants and beneficiaries of plans, IRA owners and fiduciaries with respect to such plans and IRAs. DATES: This document extends the special transition period under sections II and IX of the Best Interest Contract Exemption and section VII of the Class Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (82 FR 16902) to July 1, 2019, and delays the applicability of certain amendments to Prohibited Transaction Exemption 84– 24 from January 1, 2018 (82 FR 16902) until July 1, 2019. See Section G of the SUPPLEMENTARY INFORMATION section for a list of dates for the amendments to the prohibited transaction exemptions. FOR FURTHER INFORMATION CONTACT: Brian Shiker or Susan Wilker, telephone (202) 693–8824, Office of Exemption Determinations, Employee Benefits Security Administration. SUPPLEMENTARY INFORMATION: AGENCY: A. Procedural Background This document extends the special transition period under sections II and IX of the Best Interest Contract Exemption and section VII of the Class Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs for 18 months. This document also delays the applicability of certain amendments to ERISA & the 1975 Regulation Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), in relevant part provides that a person is a fiduciary with respect to a plan to the extent he or she renders 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. Section 4975(e)(3)(B) of the Internal Revenue Code (‘‘Code’’) has a parallel SUMMARY: PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 E:\FR\FM\29NOR1.SGM 29NOR1 56546 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations provision that defines a fiduciary of a plan (including an individual retirement account or individual retirement annuity (IRA)). The Department of Labor (‘‘the Department’’) in 1975 issued a regulation establishing a five-part test under this section of ERISA. See 29 CFR 2510.3–21(c)(1) (2015).1 The Department’s 1975 regulation also applied to the definition of fiduciary in the Code. pmangrum on DSK3GDR082PROD with RULES The New Fiduciary Rule & Related Exemptions On April 8, 2016, the Department replaced the 1975 regulation with a new regulatory definition (the ‘‘Fiduciary Rule’’). The Fiduciary Rule defines who is a ‘‘fiduciary’’ of an employee benefit plan under section 3(21)(A)(ii) of ERISA as a result of giving investment advice to a plan or its participants or beneficiaries for a fee or other compensation. The Fiduciary Rule also applies to the definition of a ‘‘fiduciary’’ of a plan in the Code pursuant to Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1, 92 Stat. 3790. The Fiduciary Rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships than was true under the 1975 regulation. On the same date, the Department published two new administrative class exemptions from the prohibited transaction provisions of ERISA (29 U.S.C. 1106) and the Code (26 U.S.C. 4975(c)(1)) (the Best Interest Contract Exemption (BIC Exemption) and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Principal Transactions Exemption)) as well as amendments to previously granted exemptions (collectively referred to as ‘‘PTEs,’’ unless otherwise indicated). The Fiduciary Rule and PTEs had an original applicability date of April 10, 2017. Presidential Memorandum By Memorandum dated February 3, 2017, the President directed the Department to prepare an updated analysis of the likely impact of the Fiduciary Rule on access to retirement information and financial advice. The President’s Memorandum was published in the Federal Register on February 7, 2017, at 82 FR 9675. On March 2, 2017, the Department published a notice of proposed 1 The 1975 Regulation was published as a final rule at 40 FR 50842 (Oct. 31, 1975). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 rulemaking that proposed a 60-day delay of the applicability date of the Rule and PTEs. The proposal also sought public comments on the questions raised in the Presidential Memorandum and generally on questions of law and policy concerning the Fiduciary Rule and PTEs.2 As of the close of the first comment period on March 17, 2017, the Department had received nearly 200,000 comment and petition letters expressing a wide range of views on the proposed 60-day delay. Approximately 650 commenters supported a delay of 60 days or longer, with some requesting at least 180 days and some up to 240 days or a year or longer (including an indefinite delay or repeal); approximately 450 commenters opposed any delay. Similarly, approximately 15,000 petitioners supported a delay and approximately 178,000 petitioners opposed a delay. First Delay of Applicability Dates On April 7, 2017, the Department promulgated a final rule extending the applicability date of the Fiduciary Rule by 60 days from April 10, 2017, to June 9, 2017 (‘‘April Delay Rule’’).3 It also extended from April 10 to June 9, the applicability dates of the BIC Exemption and Principal Transactions Exemption and required investment advice fiduciaries relying on these exemptions to adhere only to the Impartial Conduct Standards as conditions of those exemptions during a transition period from June 9, 2017, through January 1, 2018. The April Delay Rule also delayed the applicability of amendments to an existing exemption, Prohibited Transaction Exemption 84–24 (PTE 84– 24), until January 1, 2018, other than the Impartial Conduct Standards, which became applicable on June 9, 2017. Lastly, the April Delay Rule extended for 60 days, until June 9, 2017, the applicability dates of amendments to other previously granted exemptions. The 60-day delay, including the delay of the Impartial Conduct Standards in the BIC Exemption and Principal Transactions Exemption, was considered appropriate by the Department at that time. Compliance with other conditions for transactions covered by these exemptions, such as requirements to make specific disclosures and representations of fiduciary compliance in written communications with investors, was postponed until January 1, 2018, by which time the Department intended to complete the examination and analysis 2 82 3 82 PO 00000 FR 12319. FR 16902. Frm 00016 directed by the Presidential Memorandum. Request for Information On July 6, 2017, the Department published in the Federal Register a Request for Information (RFI).4 The purpose of the RFI was to augment some of the public commentary and input received in response to the April Delay, and to request comments on issues raised in the Presidential Memorandum. In particular, the RFI sought public input that could form the basis of new exemptions or changes to the Rule and PTEs. The RFI also specifically sought input regarding the advisability of extending the January 1, 2018, applicability date of certain provisions in the BIC Exemption, the Principal Transactions Exemption, and PTE 84– 24. Question 1 of the RFI specifically asked whether a delay in the January 1, 2018, applicability date of the provisions in the BIC Exemption, Principal Transactions Exemption and amendments to PTE 84–24 would benefit retirement investors by allowing for more efficient implementation responsive to recent market developments and reduce burdens on financial services providers. Comments relating to an extension of the January 1, 2018, applicability date of certain provisions were requested by July 21, 2017. All other comments were requested by August 7, 2017. The Department received approximately 60,000 comment and petition letters expressing a wide range of views on whether the Department should grant an additional delay and what should be the duration of any such delay. Many commenters supported delaying the January 1, 2018, applicability dates of these PTEs. Other commenters disagreed, however, asserting that full application of the Fiduciary Rule and PTEs is necessary to protect retirement investors from conflicts of interests, that the original applicability dates should not have been delayed from April, 2017, and that the January 1, 2018, date should not be further delayed. Still others stated their view that the Fiduciary Rule and PTEs should be repealed and replaced, either with the original 1975 regulation or with a substantially revised rule. Among the commenters supporting a delay, some suggested a fixed length of time and others suggested a more open-ended delay. Supporters of a fixed-length delay did not express a consensus view on the appropriate length, but the range generally was 1 to 2 years from the current applicability date of January 1, 4 82 Fmt 4700 Sfmt 4700 FR 31278. E:\FR\FM\29NOR1.SGM 29NOR1 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations 2018. Those commenters suggesting a more open-ended framework for measuring the length of the delay generally recommended that the applicability date be delayed for at least as long as it takes the Department to finish the reexamination directed by the President. These commenters suggested that the length of the delay should be measured from the date the Department, after finishing the reexamination, either announces that there will be no new amendments or exemptions or publishes a new exemption or major revisions to the Fiduciary Rule and PTEs. B. Proposed Amendments—18-Month Delay pmangrum on DSK3GDR082PROD with RULES On August 31, 2017, the Department published a proposal (the August 31 Notice) to extend the current special transition period under sections II and IX of the BIC Exemption and section VII of the Principal Transactions Exemption from January 1, 2018, to July 1, 2019. The Department also proposed in the August 31 Notice to delay the applicability of certain amendments to PTE 84–24 for the same period.5 Although proposing a date-certain delay (18 months), the Department specifically asked for input on various alternative approaches. The Department received approximately 145 comment letters. Approximately 110 commenters support a delay of 18 months or longer; and, by contrast, approximately 35 commenters oppose any delay.6 The Department also received two petitions containing approximately 2,860 signatures or letters supporting the delay. These comment letters are available for public inspection on EBSA’s Web site. Specific views and positions of commenters are discussed below in section C of this document. 5 82 FR 41365 (entitled ‘‘Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016–01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016–02); Prohibited Transaction Exemption 84–24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84–24)’’). 6 The Department includes these counts only to provide a rough sense of the scope and diversity of public comments. For this purpose, the Department counted letters that do not expressly support or oppose the proposed delay, but that express concerns or general opposition to the Fiduciary Rule or PTEs, as supporting delay. Similarly, letters that do not expressly support or oppose the proposed delay, but that express general support for the Rule or PTEs, were counted as opposing a delay. VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 BIC Exemption (PTE 2016–01) and Principal Transactions Exemption (PTE 2016–02) Although the Fiduciary Rule, BIC Exemption, and Principal Transactions Exemption first became applicable on June 9, 2017, with transition relief through January 1, 2018, the August 31 Notice proposed to extend the Transition Period until July 1, 2019. During this extended Transition Period, ‘‘Financial Institutions’’ and ‘‘Advisers,’’ as defined in the exemptions, would only have to comply with the ‘‘Impartial Conduct Standards’’ to satisfy the exemptions’ requirements. In general, this means that Financial Institutions and Advisers must give prudent advice that is in retirement investors’ best interest, charge no more than reasonable compensation, and avoid misleading statements.7 The August 31 Notice proposed that the remaining conditions of the BIC Exemption would not become applicable until July 1, 2019. Remaining conditions include the requirement, for transactions involving IRA owners, that the Financial Institution enter into an enforceable written contract with the retirement investor. The contract would include an enforceable promise to adhere to the Impartial Conduct Standards, an express acknowledgement of fiduciary status, and a variety of disclosures related to fees, services, and conflicts of interest. IRA owners, who do not have statutory enforcement rights under ERISA, would be able to enforce their contractual rights under state law. Also, as of July 1, 2019, the exemption would require Financial Institutions to adopt a substantial number of new policies and procedures that meet specified conflict-mitigation criteria. In particular, the policies and procedures must be reasonably and prudently designed to ensure that Advisers adhere to the Impartial Conduct Standards and must provide that neither the Financial Institution nor (to the best of its knowledge) its affiliates or related entities will use or rely on quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation, or other actions or incentives that are intended or would reasonably be expected to cause advisers to make recommendations that are not in the best interest of the retirement investor. Also as of July 1, 2019, Financial 7 In the Principal Transactions Exemption, the Impartial Conduct Standards specifically refer to the fiduciary’s obligation to seek to obtain the best execution reasonably available under the circumstances with respect to the transaction, rather than to receive no more than ‘‘reasonable compensation.’’ PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 56547 Institutions entering into contracts with IRA owners pursuant to the exemption would have to include a warranty that they have adopted and will comply with the required policies and procedures. Financial Institutions would also be required at that time to provide disclosures, both to the individual retirement investor on a transaction basis, and on a Web site. Similarly, while the Principal Transactions Exemption is conditioned solely on adherence to the Impartial Conduct Standards during the Transition Period, the August 31 Notice also proposed that its remaining conditions would become applicable on July 1, 2019. The Principal Transactions Exemption permits investment advice fiduciaries to sell to or purchase from plans or IRAs ‘‘principal traded assets’’ through ‘‘principal transactions’’ and ‘‘riskless principal transactions’’— transactions involving the sale from or purchase for the Financial Institution’s own inventory. As of July 1, 2019, the exemption would require a contract and a policies and procedures warranty that mirror the requirements in the BIC Exemption. The Principal Transactions Exemption also includes some conditions that are different from the BIC Exemption, including credit and liquidity standards for debt securities sold to plans and IRAs pursuant to the exemption and additional disclosure requirements. PTE 84–24 PTE 84–24, which applies to advisory transactions involving insurance and annuity contracts and mutual fund shares, was most recently amended in 2016 in conjunction with the development of the Fiduciary Rule, BIC Exemption, and Principal Transactions Exemption.8 Among other changes, the amendments included new definitional terms, added the Impartial Conduct Standards as requirements for relief, and revoked relief for transactions involving fixed indexed annuity contracts and variable annuity contracts, effectively requiring those Advisers who receive conflicted compensation for recommending these products to rely upon the BIC Exemption. However, except for the Impartial Conduct Standards, which were applicable beginning June 9, 2017, the August 31 Notice proposed that the remaining amendments would not be applicable until July 1, 2019. Thus, because the amendment revoking the availability of PTE 84–24 for fixed indexed annuities would not be not be applicable until July 1, 2019, affected parties (including 8 81 FR 21147 (April 8, 2016). E:\FR\FM\29NOR1.SGM 29NOR1 56548 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations insurance intermediaries) would be able to rely on PTE 84–24, subject to the existing conditions of the exemption and the Impartial Conduct Standards, for recommendations involving all annuity contracts during the Transition Period. C. Comments and Decisions Extension of the Transition Period Based on its review and evaluation of the public comments, the Department is adopting the proposed amendments without change. Thus, the Transition Period in the BIC Exemption and Principal Transaction Exemption is extended for 18 months until July 1, 2019, and the applicability date of the amendments to PTE 84–24, other than the Impartial Conduct Standards, is delayed for the same period. Accordingly, the same rules and standards in effect between June 9, 2017, and December 31, 2017, will remain in effect throughout the duration of the extended Transition Period. Consequently, Financial Institutions and Advisers must continue to give prudent advice that is in retirement investors’ best interest, charge no more than reasonable compensation, and avoid misleading statements. As the Department has stated previously: pmangrum on DSK3GDR082PROD with RULES The Impartial Conduct Standards represent fundamental obligations of fair dealing and fiduciary conduct. The concepts of prudence, undivided loyalty and reasonable compensation are all deeply rooted in ERISA and the common law of agency and trusts. These longstanding concepts of law and equity were developed in significant part to deal with the issues that arise when agents and persons in a position of trust have conflicting loyalties, and accordingly, are well-suited to the problems posed by conflicted investment advice.9 It is based on the continued adherence to these fundamental protections that the Department, pursuant to 29 U.S.C. 1108 and 26 U.S.C. 4975, is making the necessary findings and granting the extension until July 1, 2019. A delay of the remaining conditions of the BIC Exemption and Principal Transactions Exemption, and of the remaining amendments to PTE 84–24, is necessary and appropriate for multiple reasons. To begin with, the Department has not yet completed the reexamination of the Fiduciary Rule and PTEs, as directed by the President on February 3, 2017. More time is needed to carefully and thoughtfully review the substantial commentary received in response to the multiple solicitations for 9 Best Interest Contract Exemption, 81 FR 21002, 21026 (April 8, 2016) (footnote omitted). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 comments in 2017 and to honor the President’s directive to take a hard look at any potential undue burden. Whether, and to what extent, there will be changes to the Fiduciary Rule and PTEs as a result of this reexamination is unknown until its completion. The examination will help identify any potential alternative exemptions or conditions that could reduce costs and increase benefits to all affected parties, without unduly compromising protections for retirement investors. The Department anticipates that it will have a much clearer sense of the range of such alternatives only after it completes a careful review of the responses to the RFI. The Department also anticipates that it will propose in the near future a new streamlined class exemption. However, neither such a proposal nor any other changes or modifications to the Fiduciary Rule and PTEs, if any, realistically could be finalized by the current January 1, 2018, applicability date. Nor would that timeframe accommodate the Department’s desire to coordinate with the Securities and Exchange Commission (SEC) and other regulators, such as the Financial Industry Regulatory Authority (FINRA) and the National Association of Insurance Commissioners (NAIC) in the development of any such proposal or changes. The Chairman of the SEC has recently published a statement seeking public comments on the standards of conduct for investment advisers and broker-dealers, and has welcomed the Department’s invitation to engage constructively as the SEC moves forward with its examination of the standards of conduct applicable to investment advisers and broker-dealers, and related matters. Absent a delay, however, Financial Institutions and Advisers would feel compelled to ready themselves for the provisions that would become applicable on January 1, 2018, despite the possibility of changes and alternatives on the horizon. The 18month delay avoids obligating financial services providers to incur costs to comply with conditions, which may be revised, repealed, or replaced. The delay also avoids attendant investor confusion, ensuring that investors do not receive conflicting and confusing statements from their financial advisors as the result of any later revisions. Not all commenters support this approach. As mentioned above, the Department received approximately 145 comment letters on the proposed 18month delay. As with earlier comments on the April Delay Rule, as well as those received in response to Question 1 of the RFI, there is no uniform consensus PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 on whether a delay is appropriate, or on the appropriate length of any delay. Some commenters supported the proposed 18-month delay, some commenters sought longer delays, and still other commenters opposed any delay at all. However, a clear majority of commenters support a delay of at least 18 months, with many supporting a much longer delay. The primary reason commenters cited in support of the delay was to avoid unnecessary costs of compliance with provisions of the Fiduciary Rule and PTEs that the commenters believed could be changed or rescinded upon completion of the review under the Presidential Memorandum.10 Other reasons cited by commenters were to provide time for the Department to coordinate with the SEC and other regulators such as FINRA and the NAIC; allow more time for industry to come into compliance with the Fiduciary Rule and PTEs, including additional time to develop disclosures and train employees; and to reduce the possibility of client confusion resulting from attempts to comply with provisions of the Fiduciary Rule and PTEs that may change following the review pursuant to the President’s Memorandum.11 10 See, e.g., Comment Letter #42 (Western & Southern Financial Group) (‘‘only after the Fiduciary Regulation has been reviewed and revisions to it have been proposed and finalized (all in accordance with President Trump’s February 3, 2017 memorandum) will WSF&G and other similarly situated companies know with certainty what conditions will be placed on providing investment advice to retirement investors. Only then, can we appropriately design and implement compliance structures, make investments in information technology, and produce products and services that meet both the revised Fiduciary Regulation requirements and the needs of retirement investors.’’); Comment Letter #76 (Groom Law Group, on Behalf of Annuity and Insurance Company Clients) (‘‘[i]n the absence of the eighteenmonth extension, financial service providers, retirement plans, and individual savers would be subjected to extreme market dislocations. The pricing of investment products and services, the distribution models under which those services are delivered and the job responsibilities of thousands of financial services firm employees would be subject to severe dislocation as new requirements take effect. In addition, retirement savers’ access to investment advice and the terms and conditions under which that investment advice would be provided could change repeatedly and dramatically as changes to the Fiduciary Rule are made and new FAQs are issued.’’); Comment Letter #79 (Investment Company Institute) (‘‘[a]bsent a delay, service providers will continue to spend significant amounts preparing for January 1, 2018, the vast majority of which will be spent implementing the more cumbersome and technically complicated aspects of the BIC Exemption conditions.’’). 11 See, e.g., Comment Letter #52 (Transamerica) (‘‘to avoid wasteful and duplicative compliance costs and business model changes’’ and ‘‘to permit further time for coordination with the SEC.’’); Comment Letter #55 (Prudential Financial) (supporting the proposed extension/delay as ‘‘sufficient for the Department to assess and develop E:\FR\FM\29NOR1.SGM 29NOR1 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES The primary reason commenters gave against the delay is that investors will be economically harmed during the 18month delay period because, according to these commenters, there would not be any meaningful enforcement mechanism in the PTEs without the contract, warranty, disclosure and other enforcement and accountability conditions.12 According to these needed Rule changes, engage in meaningful coordination with the Securities and Exchange Commission, as well as the states and other prudential regulators, and adopt those changes’’ and also to minimize ‘‘confusion on the part of consumers and brings certainty to the financial services industry.’’); Comment Letter #63 (Massachusetts Mutual Life Insurance Company) (will ‘‘benefit retirement investors by ensuring that their access to products or advice is not needlessly restricted or reduced as a result of . . . changes to business models . . . that may prove unnecessary,’’ and ‘‘will provide time for the Department to complete its review of the Fiduciary Rule pursuant to the Presidential Memorandum,’’ and ‘‘to work with the Securities and Exchange Commission and the National Association of Insurance Commissioners.’’); Comment Letter #88 (AXA US) (‘‘will provide the Department with sufficient time to work with other regulators to develop a harmonized regulatory framework’’ and also ‘‘will allow industry participants adequate time to comply with the Rule’s final requirements’’); Comment Letter #375 (Stifel Financial Corp.) (July 25, 2017, response to RFI) (‘‘Thus, with the Impartial Conduct Standards already in place for retirement accounts, the DOL and SEC should move together and conduct a proper and fulsome study of whether additional requirements are needed to achieve appropriate consumer protections while maintaining investor choice. As the DOL and SEC study these issues, and to prevent further disruption to Brokerage and Advisory business models, it is critical that the DOL delay the January 1, 2018 implementation date for the additional conditions of the Best Interest Contract Exemption, including the contractual warranties, until a solution is determined.’’). 12 See, e.g., Comment Letter #20 (Consumer Action) (‘‘no real evidence to believe that there will be compliance with the best-interest rule without enforcement.’’); Comment Letter #44 (Economic Policy Institute) (‘‘Delaying DOL enforcement an additional 18 months (from January 1, 2018 to July 1, 2019) would cost retirement savers an additional $5.5 billion to $16.3 billion over 30 years, with a middle estimate of $10.9 billion.’’); Comment Letter #68 (AARP) (‘‘every day the protections of the prohibited transactions class exemptions are delayed the retirement security of hard working Americans is put at risk, along with potential negative impacts on the economy as a whole.’’); Comment Letter #78 (Financial Planning Coalition) (‘‘Without the PTEs, consumers do not have access to legally binding contracts on which they can rely to uphold their right to conflict-free advice in their best interest.’’); Comment Letter #80 (Consumer Federation of America) (‘‘Extending this transition period will mean that the full protections and benefits of the fiduciary rule won’t be realized and retirement savers, particularly IRA investors, will continue to suffer the harmful consequences of conflicted advice.’’); Comment Letter #81 (National Employment Law Project) (‘‘Without any meaningful enforcement mechanism, which does not exist in the IRA market without the Contract Condition, there is no basis to conclude—as the Department erroneously does—that a significant number of investment-advice fiduciaries will adhere to the ICSs when advising IRA owners during the period of the proposed delay.’’); Comment Letter #84 (Better Markets) (‘‘The long- VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 commenters, there is no credible basis to believe that significant numbers of Financial Institutions and Advisers will actually comply with the Impartial Conduct Standards when advising investors during the Transition Period without these enforcement and accountability conditions. In the view of these commenters, the Department’s 2016 RIA supports their position that compliance numbers will be low with the enforcement and accountability conditions being delayed until July 1, 2019. If Financial Institutions and Advisers do not adhere to the Impartial Conduct Standards, the investor gains predicted in the Department’s 2016 RIA for the Transition Period will not remain intact, according to these commenters, in which case the cost of the 18-month delay would exceed its benefits. Assuming twenty-five, fifty, and seventy-five percent compliance rates, one commenter estimates that delaying the enforcement conditions an additional 18 months would cost retirement savers an additional $5.5 billion (75 percent compliance) to $16.3 billion (25 percent compliance) over 30 years, with a middle estimate of $10.9 billion (50 percent compliance).13 To support adherence to the Impartial Conduct Standards during the Transition Period, and thereby preserve some predicted investor gains, several of these commenters suggested that the Department, at a bare minimum, should add the specific disclosure and representation of fiduciary compliance conditions originally required for transition relief (but which were delayed by the April Delay Rule).14 A term suspension of these accountability conditions will remove an important deterrent against violations of the Rule, resulting in conflicts of interest taking a greater toll on IRA investors in particular and causing greater overall losses in retirement savings, especially as they are compounded over time.’’); Comment Letter #91 (Public Investors Arbitration Bar Association) (‘‘If the PTEs are not permitted to be fully implemented on January 1, 2018, retirement investors will continue to be harmed by the same conflicts of interests that made the Rule and PTEs necessary in the first place.’’); Comment Letter #120 (AFL–CIO) (‘‘The Economic Policy Institute estimates that this proposal will cost retirement savers between $5.5 billion and $16.3 billion over thirty years—on top of the estimated $2.0 billion to $5.9 billion losses resulting from the Department’s previous delay.’’); Comment Letter #126 (Institute for Policy Integrity at New York University School of Law) (‘‘In sum, the Department’s proposal that the benefits would remain intact even with the postponement of the enforcement provisions is at odds with its earlier analysis of the necessity of these provisions.’’). 13 Comment Letter #44 (Economic Policy Institute). 14 Comment Letter #20 (Consumer Action) (‘‘we recommend that—at a minimum—the Department require that by January 2018 firms and advisers agree to abide by the impartial conduct standard to acknowledge their fiduciary status.’’); Comment Letter #80 (Consumer Federation of America) (‘‘at PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 56549 subset of enforcement conditions, less than the full set of conditions scheduled now for July 1, 2019, would increase the likelihood of greater levels of adherence to the Impartial Conduct Standards during the Transition Period over those levels of adherence likely if no enforcement conditions are included, according to these commenters. Because the contract, warranty, disclosure and other enforcement and accountability conditions in the PTEs are intended to support adherence to the Impartial Conduct Standards, the Department acknowledges that the 18month delay may result in a deferral of some of the estimated investor gains. As discussed below in the regulatory impact analysis, the precise amount of such deferral is unknown because the precise degree of adherence during the 18-month period also is unknown. Many commenters strongly dispute the likelihood of any harm to investors as result of the delay of the enforcement and accountability conditions. These commenters emphatically believe that investors are sufficiently protected by the imposition of the Impartial Conduct Standards along with many applicable non-ERISA consumer protections.15 a bare minimum, the Department must require firms and advisers to comply with the original transitional requirements of the exemptions, as set forth in Section IX of the BIC Exemption and Section VII of the Principal Transactions Exemption, not just the Impartial Conduct Standards. These include: (1) The minimal transition written disclosure requirements in which firms acknowledge their fiduciary status and that of their advisers with respect to their advice, state the Impartial Conduct Standards and provide a commitment to adhere to them, and describe the firm’s material conflicts of interest and any limitations on product offering; (2) the requirement that firms designate a person responsible for addressing material conflicts of interest and monitoring advisers’ adherence to the Impartial Conduct Standards; and (3) the requirement that firms maintain records necessary to prove that the conditions of the exemption have been met.’’). 15 See, e.g., Comment Letter #11 (Alternative and Direct Investment Securities Association) (The Impartial Conduct Standards requirement ‘‘can and does go a long way toward ensuring that retirement savers are provided with investment advice designed to allow them to meet their goals for retirement and otherwise.’’); Comment Letter # 23 (Wells Fargo) (Because retirement investors will continue to receive the protections of the Impartial Conduct Standards, ‘‘imposing additional compliance conditions in connection with any extension is unnecessary.’’); Comment letter #38 (Federal Investors, Inc.) (‘‘investor losses (if any) from extending the transition period would be expected to be relatively small, and as such, outweighed by the cost savings to firms by postponing changes that may prove unnecessary, or may have to be revisited’’); Comment Letter #45 (Madison Securities) (‘‘Because the Impartial Conduct Standards remain in place . . . to protect consumers, it is important for the Department to take the time necessary to address applicable issues and for the financial services industry to build adequate and appropriate systems to comply with E:\FR\FM\29NOR1.SGM Continued 29NOR1 56550 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES Many of these industry commenters note that fiduciary advisers who do not provide impartial advice as required by the Fiduciary Rule and PTEs in the IRA market would violate the prohibited transaction rules of the Code and become subject to the prohibited transaction excise tax. In addition, comments received by the Department assert that many financial institutions already have completed or largely completed work to establish policies and procedures necessary to make many of the business structure and practice shifts necessary to support compliance with the Fiduciary Rule and Impartial Conduct Standards (e.g., drafting and implementing training for staff, drafting client correspondence and explanations of revised product and service offerings, negotiating changes to agreements with product manufacturers as part of their approach to compliance with the PTEs, changing employee and agent compensation structures, and designing product offerings that mitigate conflicts of interest).16 After review of these any final rule.’’); Comment Letter #50 (Paul Hastings LLP on behalf of Advisors Excel) (‘‘with the Impartial Conduct Standards in place during the evaluation period, the interests of Retirement Investors are protected during the Department’s review of the Rule.’’); Comment Letter #56 (Benjamin F. Edwards & Co.) (‘‘Given that the Impartial Conduct Standards are already in place and that there is an additional existing and overlapping robust infrastructure of regulations that are enforced by the SEC, FINRA, Treasury, and the IRS, not to mention the Department, investors are well protected and will continue to be well protected during any extension.’’); Comment Letter #57 (Pacific Life Insurance Company) (‘‘Since advisers are now required to adhere to the requirements set forth in the Impartial Conduct Standards . . . the Rule’s stated goal to eliminate conflicted advice has been largely addressed and procedures to avoid said conflicted advice will be thoroughly engrained in advisers’ practices during the delay.’’); Comment Letter #65 (Securities Industry and Financial Markets Association) (‘‘We would also use this opportunity to address the question of the potential harm to investors if the Department was to move forward with this delay. We would refer the Department back to our comment letter of August 9, 2017. . . . In that letter we refute the supposed harm to investors if the rule is delayed, while also showing the harm if the Department actually moves forward with the current rule unchanged. We were concerned then, and are even more concerned now, that some of the changes that have taken effect in order to comply with this rule, will make it even more difficult for investors to save.’’); Comment Letter #116 (Financial Services Roundtable) (‘‘Any concern that Retirement Investors will be harmed by an extended transition period should be allayed because the Impartial Conduct Standards will continue to protect them during the extended transition period.’’). 16 See, e.g., Comment Letter # 39 (Financial Services Institute) (incorporating March 17, 2017, response to RFI) (‘‘During the transition period . . . financial institutions and financial advisors relying on the Best Interest Contract Exemption (BICE) must adhere to the Fiduciary Rule’s Impartial Conduct Standards. These Impartial Conduct Standards require financial institutions and VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 comments, and meeting with stakeholders, the Department believes that many financial institutions are using their compliance infrastructure to ensure that they currently are meeting the requirements of the Impartial Conduct Standards, which the Department believes will substantially protect the investor gains estimated in the 2016 RIA. Additionally, the Department believes that there are two enforcement mechanisms in place: The imposition of excise taxes, and a statutorily-provided cause of action for advice to ERISA plan assets, including advice concerning rollovers of these assets.17 Given these conclusions, the Department declines to add additional conditions to the PTEs during the Transition Period, but will reevaluate this issue as part of the reexamination of the Fiduciary Rule and PTEs and in the context of considering the development of additional and more streamlined exemption approaches. Accordingly, as the Department continues its reexamination, the Department welcomes input and data from stakeholders demonstrating the advisors to provide advice in the retirement investors’ best interest, charge no more than reasonable compensation for their services and to avoid misleading statements. As a result, firms that are relying on the BICE have already implemented procedures to ensure that they are meeting these new obligations. These new procedures may include changes to the firms’ compensation structures, restrictions on the availability of certain investment products, reductions in the overall number of product and service providers, improvements to their due diligence review of products and service providers, additional surveillance efforts to monitor the sales practices of their affiliated financial advisors for compliance and the creation and maintenance of books and records sufficient to demonstrate compliance with the Impartial Conduct Standards. Thus, investors are already benefitting from stronger protections since the Fiduciary Rule became partly applicable on June 9, 2017. . . . As a result, we believe any harm to investors caused by further delay of the additional requirements, to the extent it exists, is greatly reduced by the application of the Fiduciary Rule’s Impartial Conduct Standards.’’). But see Comment Letter #141 (Consumer Federation of America) (October 10, 2017 Supplement) (noting a recent survey of broker-dealers in which 64% of survey participants answered that they have not made any changes in their product mix or internal compensation structures, and concluding therefore that ‘‘it is unreasonable for the Department to believe that a significant percentage of firms have made efforts to adhere to the rule and Impartial Conduct Standards. If the Department does not factor this into its decisionmaking, it will have failed to consider an important aspect of the problem.’’). See also the Department’s Conflict of Interest FAQs, Transition Period (Set 1), Q6 (‘‘During the transition period, the Department expects financial institutions to adopt such policies and procedures as they reasonably conclude are necessary to ensure that advisers comply with the impartial conduct standards’’) available at https:// www.dol.gov/sites/default/files/ebsa/about-ebsa/ our-activities/resource-center/faqs/coi-transitionperiod-1.pdf. 17 82 FR 16902, 16909 (April 7, 2017). PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 regulated community’s implementation of the Impartial Conduct Standards. In this regard, the Department notes that, despite the view of several commenters, the duties of prudence and loyalty embedded in the Impartial Conduct Standards provide protection to retirement investors during the Transition Period, apart from the additional delayed enforcement and accountability provisions. The Department previously articulated the view that, during the Transition Period, it expects that advisers and financial institutions will adopt prudent supervisory mechanisms to prevent violations of the Impartial Conduct Standards.18 Likewise, the Department also previously articulated its view that the Impartial Conduct Standards require that fiduciaries, during the Transition Period, exercise care in their communications with investors, including a duty to fairly and accurately describe recommended transactions and compensation practices.19 Authority To Delay PTE Conditions/ Amendments Some commenters questioned the Department’s authority to delay the PTE conditions and amendments as proposed. They focused their arguments on section 705 of the APA (5 U.S.C. 705), which permits an agency to postpone the effective date of an action, pending judicial review, if the agency finds that justice so requires. These commenters say that this provision is the only method by which a federal agency may delay or stay the applicability or effective date of a rule, even if another statute confers general rulemaking authority on that agency. Since the PTEs were applicable to transactions occurring on or after June 9, 2017, the commenters argue that section 705 of the APA, by its terms, is not available in this circumstance. In the absence of the availability of section 705 of the APA, they assert, the Department lacks authority to delay the applicability date of the PTE conditions and amendments, as proposed. However, the Department disagrees that it lacks authority to adopt the 18-month delay of the conditions and amendments in this circumstance, where the Department is acting through and in accordance with its ordinary notice and comment rulemaking procedures for PTEs, pursuant to both the APA and 29 U.S.C. 1108. As noted elsewhere in the document, the Department is granting 18 81 FR 21002, 21070 (April 8, 2016). FR 16902, 16909 (April 7, 2017) (recognizing fiduciary duty to fairly and accurately describe recommended transactions and compensation practices). 19 82 E:\FR\FM\29NOR1.SGM 29NOR1 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES this delay pursuant to section 408 of ERISA.20 Under this provision, the Secretary of Labor has discretionary authority to grant administrative exemptions, with or without conditions, under ERISA and the Code on an individual or class basis, if the Secretary finds that the exemptions are (1) administratively feasible, (2) in the interests of plans and their participants and beneficiaries and IRA owners, and (3) protective of the rights of the participants and beneficiaries of such plans and IRA owners. Having made these findings in this case after reviewing the substantial public comments received in response to the RFI and August 31 Notice, the Department is confident of its authority to grant the 18-month delay. In the Department’s view, it can delay, modify or revoke, temporarily or otherwise, some or all of a PTE, using notice and comment rulemaking, as long as— pursuant to the appropriate procedures—the Department makes the required findings and is not arbitrary or capricious in doing so. The Department has fully satisfied those requirements in this case, just as it did when it delayed applicability dates from June 9, 2017, through January 1, 2018. Length of Delay Although the August 31 Notice proposed a fixed 18-month delay, the proposal also specifically solicited comments on the benefit or harms of two alternative delay approaches: (1) A contingent delay that ends a specified period after the occurrence of a specific event, such as the Department’s completion of the reexamination ordered by the President or the publication of changes to the Fiduciary Rule or PTEs; and (2) a tiered approach postponing full applicability until the earlier of or the later of (a) a time certain and (b) the end of a specified period after the occurrence of a specific event. There was no consensus among the commenters as to either the proper amount of time for a delay or the best approach (time certain delay versus contingent or tiered delays). Pros and cons were reported on all three approaches. Many commenters supported the fixed 18-month delay in the proposal. The proposed 18-month period would commence on January 1, 2018, and end on July 1, 2019, regardless of exactly when the Department might complete its reexamination or take any other action or actions. The premise behind this approach is that, whatever action or actions may or may not be taken by the 20 29 U.S.C. 1108(a); see also 26 U.S.C. 4975(c)(2). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 Department, such actions would be completed within the 18-month period. These commenters believe this approach provides more certainty, to both industry stakeholders and investors, as compared to the other approaches.21 This is these commenters’ 21 Comment Letter #38 (Federated Investors, Inc.) (‘‘the time-certain delay is the most appropriate and workable choice under the circumstances, because it provides financial services firms, plan sponsors, plan participants and beneficiaries, IRA owners with the certainty of a clear target date. If the circumstances approaching July 1, 2019, indicate the need for a further delay, we would expect that the Department will, at that time, evaluate and provide what would be a reasonable time period to come into compliance based on the nature and extent of any changes to the existing regulation and exemptions.’’); Comment Letter #39 (Financial Services Institute) (tiered delay or conditional delay ‘‘would harm consumers by adding uncertainty and confusion to the market, while providing insufficient certainty to industry stakeholders.’’); Comment Letter #46 (American Bankers’ Assoc.) (‘‘fixed 18-month period would minimize the costs that would be incurred by financial services providers to comply with Fiduciary Rule and exemptions as currently written. It would also allow the Department to measure the progress of its regulatory review against a firm deadline. If, as the deadline date approaches, it appears additional time might be needed to complete its regulatory review, then the Department can consider at that time whether to propose such additional time as may be needed for completion.’’); Comment Letter #51 (Morgan Stanley) (‘‘A delay solely based on a specific contingent future event (e.g., the issuance of new exemptive relief) poses a host of problems for financial institutions. . . . By enacting a timecertain delay of at least eighteen months, financial institutions will be better able to plan for and implement any changes that are necessary to comply with new guidance and create or modify product and platform offerings. . . . A ‘floating timeline’ as suggested by the Department also poses the risk of further confusing the retirement investors that the Rule is intended to protect.’’); Comment Letter #73 (Raymond James) (‘‘While there are benefits and drawbacks to any method chosen, we feel that the 18-month period certain delay provides a level of certainty which is beneficial to the Department’s ongoing analysis of the Rule and the retirement marketplace. Along with the Department’s continued analysis and potential rulemaking, please consider that an 18month delay may be insufficient to not only complete the Department’s work, but also the subsequent implementation efforts firms will need to undertake. As a means to maintain assurance in the marketplace and provide adequate time to accomplish all relevant objectives, please consider during your analysis whether it may be prudent to issue an additional delay further in advance of the July 1, 2019 date.’’); Comment Letter #82 (Standard Insurance Company, Standard Retirement Services) (‘‘The Department should not adopt a tiered delay approach. The other methods proposed in the request for comments would only add further confusion. A fixed time period will be in the best interests of retirement investors because it will allow financial service companies to be able to continue to provide advice, education and services to retirement plan investors without uncertainty. Once any changes to the Regulations and Exemptions are proposed and finalized, the Department will be in a better position to evaluate what, if any, additional time is needed to implement the changes. A fixed time period for the Extensions will provide the industry and retirement investors alike a more definite environment in which to conduct business.’’); Comment Letter #110 (Association for Advanced Life Underwriting) PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 56551 view, even though many of them recognized that an additional delay could be needed in the future, depending on the extent of future changes to the Fiduciary Rule and PTEs, if any.22 These commenters believe that certainty is needed for planning and implementation purposes and that a flat delay of 18 to 24 months provides that certainty.23 Even among the (‘‘Given the ‘lead’ time required for compliance, only the date certain approach provides necessary stability for retirement investors and their financial professionals by removing unnecessary and harmful regulatory uncertainty. The contingent event approach and the tiered approach both introduce too much uncertainty. Not only would the compliance deadline be vague and undefined, based on when some future event may happen (and accurately predicting when a Federal Agency may complete an action is a notoriously difficult thing to achieve), but uncertainty would also result from which contingent act is selected as the basis for the end of the Transition Period.’’); Comment Letter #116 (Financial Services Roundtable) (‘‘the Department should not adopt a tiered transition period . . .’’). 22 See, e.g., Comment Letter #75 (Groom Law Group—Recordkeeping Clients) (‘‘The Groom Group supports a fixed delay as opposed to a tiered delay structure because the Department has already evaluated the cost-benefit analysis of the Proposed Extension and because the Department could always propose an additional delay closer to July 1, 2019 if it determines that additional time is needed. Right now, it is most important that the Department finalize the Proposed Extension promptly. Evaluating extensions of different lengths or with variable end points will only prolong the amount of time it takes for the Department to finalize the Proposed Extension.’’); Comment Letter #7 (Tucker Advisors) (‘‘Should the Department determine that additional time is necessary to complete its review or should the Department ultimately propose changes, the Department can, at that time, propose an additional extension to provide plan service providers sufficient time to build out the systems necessary to comply with such changes.’’); Comment Letter #27 (State Farm Mutual Automobile Insurance Company) (‘‘State Farm suggests that the Department maintain a position of flexibility to the extent additional time is needed to ensure the implementation of an effective, workable and efficient rule.’’); Comment Letter #57 (Pacific Life Insurance Company) (‘‘if the Department retains flexibility in this delay, potentially revisiting when the revised final rule is released and changes are actually known, then Pacific Life does not feel the tiered-approach is a necessary method of delay.’’); Comment Letter # #69 (Teachers Insurance and Annuity Association of America-TIAA) (‘‘While an extension tied to completion of the Department’s review may offer some additional benefit, we believe it is more urgent that Proposed Extension be finalized.’’); Comment Letter #79 (Investment Company Institute) (‘‘The Department should clarify that it will provide a period of at least one year following the finalization of any modifications, and more time, depending on the nature of modifications made and the resultant lead time required to meet any attendant compliance requirements.’’). 23 Comment Letter #115 (Bank of New York Mellon & Pershing, LLC) (‘‘we are supportive of an 18-month extension and delay to allow the Department to complete its review and consider modifications to the Rule and PTEs because it provides certainty that the marketplace needs to minimize disruptions for retirement investors. Whether the Department ultimately pursues a tiered approach or a fixed duration approach with respect E:\FR\FM\29NOR1.SGM Continued 29NOR1 56552 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES commenters generally opposed to any delay, one commenter stated that, as between a fixed 18-month delay and the more open-ended contingent or tiered approaches, the fixed 18-month delay provides more certainty and protection to consumers.24 By contrast, many commenters believe a contingent or tiered approach is the better way forward.25 Of paramount importance to most of these commenters is that they have sufficient time to ready themselves for compliance with any changes to the requirements of the Fiduciary Rule and PTEs, which they believe should be substantially different than the current Fiduciary Rule and PTEs. These commenters assert that it is improbable that the Department will complete the directed reexamination within the proposed 18month period, let alone propose and finalize amendments to the Fiduciary Rule and PTEs and provide adequate time to come into compliance with any to the proposed extension and delay period, once any modifications to the Rule and PTEs are finalized, the Department will need to allow adequate time for firms to comply with such modified Rule and PTEs. We expect any changes proposed to the Rule and PTEs, or any newly proposed PTEs, will be made available to the public for notice and comment with the opportunity to review. Because we don’t yet know the scope of these proposed changes or when such changes would become applicable, however, the need for additional potential transition period extensions and applicability date delays with respect to the PTEs is unavoidable.’’); Comment Letter #112 (Northwestern Mutual Life Insurance Company) (‘‘Northwestern Mutual supports a minimum delay of eighteen months as proposed by the Department and a further delay if the Department concludes that changes should be made to the Fiduciary Duty Rule or the Exemptions. . . . If, for example, the Department determines that significant changes should be made to the BIC, and those changes are made final in early 2019, then at least an additional transition year should be provided from that date to allow firms enough time to make the necessary changes to processes and systems and to be able to communicate in an orderly manner with their clients.’’); Comment Letter #114 (BBVA Compass) (‘‘In our view, however, the proposed 18-month extension provides the minimum period needed to allow the Department and other interested parties to review the Rule and the accompanying Exemptions, make appropriate determinations regarding what changes to the Rule are warranted and afford financial institutions reasonable time to develop and implement processes and systems changes necessary to conduct activity in a compliant manner.’’). 24 See, e.g., Comment Letter # 68 (AARP) (although generally opposed to any delay, as between a fixed 18-month delay and a contingent or tiered delay, the commenter stated it ‘‘is concerned that tiered compliance dates will exacerbate investor confusion and will make it more difficult for Americans saving for retirement to understand. A single compliance date would be preferred.’’). 25 See, e.g., Comment Letter #29 (American Retirement Association) (Recommends a tiered approach in which the applicability date is delayed until ‘‘the later of January 1, 2019, or a date that is at least 18-months from the date a revised exemption or rule is promulgated.’’). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 such revisions—all within that same 18month period.26 They, therefore, identify the contingent and tiered varieties as the better approaches because, in their estimation, these approaches would ensure adequate time for compliance with the Fiduciary Rule and PTEs, as revised, and thereby more effectively avoid a scenario of consecutive or serial piecemeal delays in the future.27 These commenters generally favored a range of 12 to 24 months following the Department’s finalization of changes to the Fiduciary Rule and PTEs or following the publication of a decision that no changes are on the horizon. As between the proposed 18-month fixed delay and the contingent and tiered alternatives, the Department continues to believe that using a datecertain approach, rather than one of the other alternatives, is the best way to respond to and minimize concerns about uncertainty with respect to the eventual application and scope of the Fiduciary Rule and PTEs. Although the contingent and tiered approaches have the built-in advantage of an automatic extension, if needed, it is difficult to choose the appropriate triggering event before the Department completes its reexamination of the Fiduciary Rule and PTEs. Interjecting unnecessary uncertainty regarding the future applicability and scope of the Fiduciary Rule and PTEs is harmful to all stakeholders. In addition, the Department believes that the additional 18 months is sufficient to complete review of the new information in the record and to implement changes to the Fiduciary Rule and/or PTEs, if any, including opportunity for notice and comment and coordination with other regulatory agencies. 26 See, e.g., Comment Letter #127 (Cetera Financial Group) (a delay to July 1, 2019, or any other fixed date does not take into account the possibility that the review itself takes more than 18 months, the additional time that it will take financial advisers to digest any amendments to the rule and incorporate changes to their own systems and processes after a final rule is published, and the likelihood of confusion on the part of investors as to what standards apply to advice they receive in connection with retirement investments prior to publication of any amendments to the Fiduciary Rule.). 27 See, e.g., Comment Letter #65 (Securities Industry and Financial Markets Association) (‘‘We believe that a tiered approach extending the delay to the later of the 18-month period the Department proposed and a period ending 24 months after the completion of the review and publication of final rules will best avoid the confusion, uncertainty and cost associated with continued piecemeal delays.’’); Comment Letter #97 (Insured Retirement Institute) (‘‘the tiered approach . . . would provide the greatest level of certainty for our members and the customers they serve. This structure would avoid the need for the Department to propose additional delays in the future. . .’’). PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 The proposal also solicited comments on whether to condition any extension of the Transition Period on the behavior of the entity seeking relief under the Transition Period. For example, the Department specifically asked for comment on whether to condition the delay on a Financial Institution’s showing that it has, or a promise that it will, take steps to harness recent innovations in investment products and services, such as ‘‘clean shares.’’ All of the comments in response to this question opposed this idea. Some commenters expressed their concern that this approach would add confusion for Financial Institutions, who would be forced to change their products and services, and for retirement consumers, who would be forced to react to such changes.28 Other commenters believed that this approach would create an unlevel playing field by providing relief to select business models and investments rather than providing more neutral relief to many different business models and investments.29 Other 28 See, e.g., Comment Letter #76 (Groom Law Group on Behalf of Annuity and Insurance Company Clients) (‘‘Not only would imposing additional conditions reduce the benefit of the Proposed Extension, but additional conditions would add confusion for Financial Institutions, who would be forced to change their products and services, and for retirement consumers, who would be forced to react to such changes.’’); Comment Letter #82 (Standard Life Insurance Company, Standard Retirement Services) (‘‘To condition a further delay on certain steps toward ‘innovations’ would only serve to confuse investors and the retirement industry.’’). 29 See, e.g., Comment Letter #62 (Lincoln Financial Group) (‘‘We continue to urge the Department to . . . hold fee-based compensation and commissions to the same standard and process, so that guaranteed lifetime income products can be made available to consumers on a level playing field with other products.’’); Comment Letter #65 (Securities Industry and Financial Markets Association) (‘‘Further, we do not believe the Department should condition delays upon adoption of any specific ‘innovations’ by entities that rely on the Transition Period. [E]xemptions should be generally applicable to many different business models, and not simply the model that the Department prefers.’’); Comment Letter #48 (American Council of Life Insurers) (‘‘we strongly oppose a delay approach based on subjective criteria. . . . A subjective delay approach, based on undefined and ambiguous factors, such as whether firm has taken ‘concrete steps’ to ‘harness’ market developments, would require the Department to subjectively and inappropriately pick and choose among providers and products based on vague factors. We question the constitutionality and legality of such an approach.’’); Comment Letter #53 (PSF Investments/Primerica) (‘‘Tying a delay to firms’ adoption of certain ‘innovations’ or business models would only add further to the perception or actuality that the government is favoring a product, an industry, a business model or a compensation structure.’’); Comment Letter #109 (Fidelity Investments) (‘‘Finally, we agree with the Department that applicability of the delay should not be conditioned on an advice provider engaging in certain behavior, such as making a promise to harness recent innovations in investment products E:\FR\FM\29NOR1.SGM 29NOR1 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations commenters are concerned that this approach would create uncertainty and confusion as to whether a particular firm is being held to a different legal standard than its peers, which would be detrimental to clients, investors, and other stakeholders.30 One commenter indicated that it is strongly opposed to this approach because essentially it would be a new or different exemption, and not really an extension of the current Transition Period.31 The Department is persuaded that conditions of this type generally seem more relevant in the context of considering the development of additional and more streamlined exemption approaches that take into account recent marketplace innovations, and less appropriate and germane in the context of a decision whether to extend the Transition Period. pmangrum on DSK3GDR082PROD with RULES Miscellaneous The Department rejects certain comments beyond the scope of this rulemaking, whether such comments were received pursuant to the August 31 Notice or the RFI. For instance, one commenter urged the Department to amend the Principal Transactions Exemption for the Transition Period to remove the limits on products that can be traded on a principal basis, and allow those products that have historically been traded in the principal market to and services. Such conditions would unduly pressure advice providers to engage in whatever behavior might be designated. Slanting advice in this manner, however favorably the Department or any other person might view a particular product or service or behavior, will necessarily constrain choice and options to the detriment of retirement savers. Making an advice provider’s use of a specific product or service the price of avoiding the needless costs and investor confusion associated with the January 1 applicability date is not appropriate or warranted.’’). 30 See, e.g., Comment Letter #64 (BlackRock) (‘‘The uncertainty and confusion as to whether a particular firm is being held to a different legal standard than its peers would be detrimental to clients, investors and other stakeholders.’’). See also Comment Letter #103 (Committee of Annuity Insurers) (stated that ‘‘it could stifle innovation in product and advice models,’’ that ‘‘the Department should not substitute its own investment preferences for the preferences and insights of advisers,’’ and that ‘‘the conditional relief contemplated in the Department’s proposal would be ‘too imprecise’ for any firm seeking to avail themselves of the potential relief.’’). 31 Comment Letter #86 (Spark Institute) (‘‘The circumstances necessitating the existing Transition Period have not changed in any way since its announcement in the spring. The Department has not completed its examination and it has not announced whether, and how, the Investment Advice Regulation will be amended. Until the Department has completed both of those tasks, it should not alter its existing Transition Period rules in any way, other than to extend its expiration. Any contrary decision would result in significant market disruptions, substantial confusion, and would be difficult to monitor and administer.’’). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 continue to be bought and sold by IRAs and plans, including, but not limited to, foreign currency, municipal bonds, and equity and debt IPOs. A different commenter requested that the Department revise the ‘‘grandfather’’ exemption, in section VII of the BIC Exemption, so that grandfathering treatment would apply to recommendations made prior to the expiration of the extended Transition Period (July 1, 2019).32 Inasmuch as amendments such as these were not suggested in the August 31 Notice, the public did not have notice or a full opportunity to comment on these issues and they are beyond the scope of this final rule. The Department, however, is open to further consideration of the merits of these requests, and the submission of additional relevant information, as part of its ongoing reexamination of the Fiduciary Rule and related exemptions. D. Findings by Secretary of Labor ERISA section 408(a) specifically authorizes the Secretary of Labor to grant administrative exemptions from ERISA’s prohibited transaction provisions.33 Reorganization Plan No. 4 of 1978 generally transferred the authority of the Secretary of the Treasury to grant administrative exemptions under Code section 4975(c)(2) to the Secretary of Labor.34 Regulations at 29 CFR 2570.30 to 2570.52 describe the procedures for applying for an administrative exemption. Under these authorities, the Secretary of Labor has discretionary authority to grant new or modify existing administrative exemptions under ERISA and the Code on an individual or class basis, if the Secretary finds that the exemptions are (1) administratively feasible, (2) in the interests of plans and their participants and beneficiaries and IRA owners, and (3) protective of the rights of the participants and beneficiaries of such plans and IRA owners. The Department has made such findings with respect to 32 Due to the delay of certain exemption conditions as part of the April Delay Rule, the standards applicable to grandfathered assets and non-grandfathered assets during the Transition Period are similar. For this reason, the Department sees no compelling reason to extend grandfathering treatment through the Transition Period. The primary purpose of the grandfathering exemption was to preserve compensation for services rendered prior to the Fiduciary Rule and to permit orderly transition from past arrangements, not to exempt future advice and investments from important protections scheduled to become applicable after the Transition Period. Nevertheless, commenters are encouraged to supplement their comments on this point during the reexamination period. 33 29 U.S.C. 1108(a). 34 5 U.S.C. app at 214 (2000). PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 56553 the 18-month extension of the Transition Period under the BIC and Principal Transactions Exemptions and the 18-month delay in the applicability of certain amendments to PTE 84–24. It is largely the continued imposition of the Impartial Conduct Standards that enables the Department to grant the delay under these standards, but other factors are also important to these findings. For instance, it is in the interests of plans and their participants and beneficiaries and IRA owners to avoid the cost and confusion of a potentially disorderly transition to PTE conditions that are under reexamination pursuant to a Presidential Executive Order and that may change in the near future. In addition, to be protective of the rights of participants, beneficiaries, and IRA owners, the Department chose a time certain delay of 18 months, rather than a more open-ended contingent or tiered alternative. These factors are discussed further in the RIA section of this document. E. Extension of Temporary Enforcement Relief—FAB 2017–02 On May 22, 2017, the Department issued a temporary enforcement policy covering the transition period between June 9, 2017, and January 1, 2018, during which the Department will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the PTEs, or otherwise treat those investment advice fiduciaries as being in violation of their fiduciary duties and not compliant with the PTEs. See Field Assistance Bulletin 2017–02 (May 22, 2017) (FAB 2017–02). Comments were solicited on whether to extend this policy for the same period covered by the proposed extension of the Transition Period. Commenters supporting an extension of the Transition Period overwhelmingly indicated their support for also extending the temporary enforcement policy in FAB 2017–02, to align the two periods.35 These 35 See, e.g., Comment Letter #29 (American Retirement Association) (‘‘ARA would strongly recommend continuing the temporary enforcement policy announced in Field Assistance Bulletin 2017–02. This would be consistent with the Department’s announced intention to assist (rather than citing violations and imposing penalties on) plans, plan fiduciaries, financial institutions and others who are working diligently and in good faith to understand and come into compliance with the fiduciary duty rule and exemptions. Further, if a Financial Institution acts in bad faith, the Department could pursue an enforcement action.’’); Comment Letter #30 (Neuberger Berman Group) (‘‘We unconditionally support the common sense answer that the Temporary Enforcement Policy be E:\FR\FM\29NOR1.SGM Continued 29NOR1 56554 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES commenters believe such an alignment will significantly help to avoid market disruptions during the Transition Period. These commenters strongly oppose adding any new conditions to the enforcement policy during this period. They also request clarification that the relief under FAB 2017–02 is conditioned on diligent and good faith efforts to comply with the Fiduciary Rule and Impartial Conduct Standards, and does not also require diligent and good faith efforts towards implementing the delayed provisions of the PTEs.36 extended to line up with the final applicability dates in respect of those originally scheduled for January 1, 2018.’’); Comment Letter #48 (American Council of Life Insurers) (‘‘An extension of FAB 2017–02’s temporary enforcement policy is consistent with the Department’s stated ‘good faith’ compliance approach to implementation. . . .’’); Comment Letter # 86 (Spark Institute) (‘‘SPARK strongly supports an extension of the Department’s temporary enforcement policy because of all of the uncertainty surrounding the future of the Investment Advice Regulation. The Department’s proposal to extend the Transition Period notes that the Department is considering an extension of the Transition Period because it is still not known whether, and to what extent, there will be changes to the Department’s interpretation of ‘‘investment advice’’ and the new and revised PTEs. Given this rationale, it simply would not make any sense for the Department to start enforcing portions of a regulation that is actively being reconsidered.’’); Comment Letter #92 (E*TRADE) (‘‘any delay should include a corresponding extension of Field Assistance Bulletin 2017–02. As firms are already subject to the Impartial Conduct Standards . . . we believe a corresponding extension of FAB 2017–02 will benefit financial service providers without harming retirement investors, while retaining enforcement powers for firms not implementing requirements in good faith.’’); Comment Letter #128 (U.S. Chamber of Commerce) (‘‘The Chamber believes the Department should extend the applicability of Field Assistance Bulletin 2017–02 from January 1, 2018, until the end of the Transition Period.’’). 36 See, e.g., Comment Letter #28 (Empower Retirement) (‘‘The relief offered under FAB 2017– 02 was conditioned on fiduciaries working diligently and in good faith to comply with the fiduciary rule and exemptions. The DOL should make clear that this does not require continuing implementation efforts that would have been required for the January 1, 2018 applicability date, but is based on continued adherence to the Impartial Conduct Standards.’’); Comment Letter #41 (Great-West Financial) (‘‘To avoid disruption in the market, the DOL should refrain from adding new conditions but should simultaneously announce that the non-enforcement policy announced in FAB 2017–02 will be extended during the eighteen-month extension. The relief offered under FAB 2017–02 was conditioned on fiduciaries working diligently and in good faith to comply with the fiduciary duty rule and exemptions. The DOL should make clear that this does not require continuing implementation efforts that would have been required for the January 1, 2018 applicability date, but is based on continued adherence to the Impartial Conduct Standards.’’). See also Comment Letter #82 (Standard Insurance Company and Standard Retirement Services, Inc.) (‘‘we ask that The Department also extend the temporary enforcement policy providing relief to investment advice fiduciaries who are working in good faith to comply with the Regulations. Adding subjective requirements like ‘taking steps toward innovations’ would only add further uncertainty and confusion to the current situation.’’). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 Although the Department has a statutory responsibility and broad authority to investigate or audit employee benefit plans and plan fiduciaries to ensure compliance with the law, compliance assistance for plan fiduciaries and other service providers is also a high priority for the Department. The Department has repeatedly said that its general approach to implementation will be marked by an emphasis on assisting (rather than citing violations and imposing penalties on) plans, plan fiduciaries, financial institutions, and others who are working diligently and in good faith to understand and come into compliance with the Fiduciary Rule and PTEs. Consistent with that approach, the Department has determined that extended temporary enforcement relief is appropriate and in the interest of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners. Accordingly, during the phased implementation period from June 7, 2016, to July 1, 2019, the Department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the Fiduciary Rule and applicable provisions of the PTEs, or treat those fiduciaries as being in violation of the Fiduciary Rule and PTEs.37 At the same time, however, the Department emphasizes, as it has in the past, that firms and advisers should work ‘‘diligently and in good faith to comply’’ 38 with their fiduciary obligations during the Transition Period. The ‘‘basic fiduciary norms and standards of fair dealing’’ 39 are still 37 On March 28, 2017, the Treasury Department and the IRS issued IRS Announcement 2017–4 stating that the IRS will not apply § 4975 (which provides excise taxes relating to prohibited transactions) and related reporting obligations with respect to any transaction or agreement to which the Labor Department’s temporary enforcement policy described in FAB 2017–01, or other subsequent related enforcement guidance, would apply. The Treasury Department and the IRS have confirmed that, for purposes of applying IRS Announcement 2017–4, the discussion in this document constitutes ‘‘other subsequent related enforcement guidance.’’ 38 See Conflict of Interest FAQs (Transition Period), May 2017, p.11. (https://www.dol.gov/sites/ default/files/ebsa/about-ebsa/our-activities/ resource-center/faqs/coi-transition-period-1.pdf); see also FAB 2017–02 (‘‘The Department has repeatedly said that its general approach to implementation will be marked by an emphasis on assisting (rather than citing violations and imposing penalties on) plans, plan fiduciaries, financial institutions, and others who are working diligently and in good faith to understand and come into compliance with the fiduciary duty rule and exemptions.’’). 39 Conflict of Interest FAQs (Transition Period), May 2017, p.3. PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 required of fiduciaries during the Transition Period. Accordingly, as the Department reviews the compliance efforts of firms and advisers during the Transition Period, it will focus on the affirmative steps that firms have taken to comply with the Impartial Conduct Standards and to reduce the scope and severity of conflicts of interest that could lead to violations of those standards. The Department recognizes that the development of effective, long-term compliance solutions may take time, but it remains critically important that firms take action to ensure that investment recommendations are governed by the best interests of retirement investors, rather than the potentially competing financial incentives of the firm or adviser. As the Department explained in previous guidance, although firms ‘‘retain flexibility to choose precisely how to safeguard compliance with the Impartial Conduct Standards’’ 40 during the Transition Period, they certainly may look to the specific provisions of the Best Interest Contract Exemption and Principal Transactions Exemption for guidance on ways to comply with the Impartial Conduct Standards. Thus, for example, the Department noted: ‘‘Section IV of the BIC Exemption provides a detailed statement of how firms that limit adviser’s investment recommendations to proprietary products or to investments that generate third party payments can comply with the best interest standard.’’ ‘‘If the firm and the adviser meet the terms of Section IV. . . they are ‘deemed’ to satisfy the best interest standard.’’ 41 Thus, while firms are not required to rely on Section IV during the Transition Period, such reliance would certainly constitute good faith compliance. The Department also remains ‘‘broadly available to discuss compliance approaches and related issues with interested parties, and would invite interested parties to contact the Department’’ 42 about the compliance approaches they have adopted or plan to adopt. This document accordingly supplements FAB 2017–02. F. Regulatory Impact Analysis The Department expects that the extension of the Transition Period under the BIC and Principal Transactions Exemptions and the delay of the amendments to PTE 84–24 (other than the Impartial Conduct Standards) will 40 Id. at p.6. at p.6 n.4. 42 Id. at p.6. 41 Id. E:\FR\FM\29NOR1.SGM 29NOR1 pmangrum on DSK3GDR082PROD with RULES Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations produce benefits that justify associated costs. These actions will avert the possibility of a costly and disorderly transition from the Impartial Conduct Standards to full compliance with the exemptions’ conditions that ultimately could be modified or repealed, and thereby reduce some compliance costs. Similarly, it could avert the possibility of unnecessary costs to consumers as a result of an unnecessarily confusing or disruptive transition. As stated above, the Department currently is engaged in the process of reviewing the Fiduciary Rule and PTEs as directed in the Presidential Memorandum and reviewing comments received in response to the RFI. The delay will allow the Department to reexamine the Fiduciary Rule and PTEs and to update its economic analysis. The Department’s objective is to complete its review pursuant to the President’s Memorandum, analyze comments received in response to the RFI, determine whether future changes to the Fiduciary Rule and PTEs are necessary, and propose and finalize any changes to the Fiduciary Rule or PTEs sufficiently before July 1, 2019, to provide firms with sufficient time to design and implement an orderly transition to any new requirements. If the Department revises or repeals some aspects of the Fiduciary Rule and PTEs in the future, the delay will allow affected firms to avoid incurring significant implementation costs now which later might turn out to be unnecessary. Furthermore, the delay will provide firms with more time to develop new products and practices that can provide long-term solutions for mitigating conflicts of interests. For example, a commenter cited numerous logistical obstacles that must be surmounted before using clean share classes in the market.43 The delay provides firms with additional time to address these issues and successfully launch products that benefit investors. The delay also will provide the Department with time to consult further with other regulators including the NAIC and the SEC. Such consultations may advance the development of a regulatory framework that could promote market efficiency and transparency, while reducing the burden to the financial sector and associated consumer costs. 43 Comment Letters #229 (Investment Company Institute) (dated July 21, 2017), #442 (Morningstar, Inc.) (dated August 3, 2017), and #594 (Fi360, Inc.) (dated August 7, 2017) (responding to RFI). VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 1. Executive Order 12866 Statement This final rule is an economically significant action within the meaning of section 3(f)(1) of Executive Order 12866, because it would likely have an effect on the economy of $100 million in at least one year. Accordingly, the Department has considered the costs and benefits of the final rule, which has been reviewed by the Office of Management and Budget (OMB). a. Investor Gains Beginning on June 9, 2017, Financial Institutions and Advisers generally were required to (1) make recommendations that are in their client’s best interest (i.e., recommendations that are prudent and loyal), (2) avoid misleading statements, and (3) charge no more than reasonable compensation for their services. If they fully adhere to these requirements, the Department expects that affected investors will generally receive impartial advice and accordingly a significant portion of the gains it estimated in the 2016 RIA.44 However, because the PTE conditions are intended to support and provide accountability mechanisms for such adherence and remedies for lapses thereof (e.g., conditions requiring advisers to provide a written acknowledgement of their fiduciary status and adherence to the Impartial Conduct Standards and enter into enforceable contracts with IRA investors), the Department acknowledges that the delay may result in the loss or deferral of some of the estimated investor gains. On the other hand, potential revisions to PTE conditions may reduce costs and thereby yield additional investor gains. The Department received many comments on the question of whether the delay would reduce investor gains. One group of commenters argued that the delay would not cause any harms to investors, 45 because the Impartial Conduct Standards already are in place and provide sufficient protection for investors.46 They asserted that investor gains would be largely preserved during the extended transition period, because the investor gains primarily are derived 44 The Department’s baseline for this RIA includes all current rules and regulations governing investment advice including those that would become applicable on January 1, 2018, absent this delay. The RIA did not quantify incremental gains by each particular aspect of the rule and PTEs. 45 See, e.g., Comment Letter #11 (Alternative and Direct Securities Investment Association); Comment Letter #38 (Federated Investors, Inc.); Comment Letter #65 (Securities Industry and Financial Markets Association); Comment Letter #79 (Investment Company Institute). 46 See, e.g., Comment Letter #11 (Alternative and Direct Securities Investment Association). PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 56555 from the expanded fiduciary status and the Impartial Conduct Standards, which already have taken effect, and this rule simply delays the implementation of some other exemption conditions.47 Furthermore, these commenters urged the Department to weigh the harms to investors from not delaying the January 1, 2018, applicability date. According to them, there is no evidence that investors would be harmed by this delay, and because the Fiduciary Rule already has negatively affected many investors, they would suffer more harm if the remaining conditions of the PTEs were not delayed.48 Another group of commenters argued that the delay would cause significant losses to investors,49 because they found that many financial services firms have preserved business models that the commenters view as conflict-laden and not made meaningful changes to root out conflicts of interest.50 They also asserted that many financial services firms could flout the requirements of the Impartial Conduct Standards due to the lack of a strong enforcement mechanism in the retail IRA market and the Department’s non-enforcement policy during the extended transition period.51 To support their claims, these commenters cited media reports that financial services firms are not implementing further changes because they anticipate that the Department will issue a lengthy delay of the transition period 52 and some pockets of industry suspended their implementation.53 One commenter referenced a market survey of broker-dealers in which many respondents reported that they have not yet made efforts to adhere to the Fiduciary Rule and the Impartial Conduct Standards.54 For example, about 64 percent of surveyed brokerdealers responded that they have not 47 See, e.g., Comment Letter #229 (Investment Company Institute) to the RFI; Comment Letter #79 (Investment Company Institute). 48 See, e.g., Comment Letter #65 (Securities Industry and Financial Markets Association). 49 See, e.g., Comment Letter #44 (Economic Policy Institute); Comment Letter #68 (AARP); Comment Letter #80 (Consumer Federation of America); Comment Letter #84 (Better Markets); Comment Letter #91 (Public Investors Arbitration Bar Association); Comment Letter #108 (American Association for Justice); Comment Letter #126 (Institute for Policy Integrity at New York University School of Law). 50 See, e.g., Comment Letter #80 (Consumer Federation of America). 51 See, e.g., Comment Letter #80 (Consumer Federation of America). 52 Greg Iacurici, Investment News, August 16, 2017, ‘‘Anticipating delay to DOL fiduciary rule, broker-dealers and RIAs change course.’’ 53 Diana Britton, Wealth Management.com, June 19, 2017, ‘‘DOL in the Real World.’’ 54 Comment Letter #141 (Consumer Federation of America). E:\FR\FM\29NOR1.SGM 29NOR1 56556 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES made any changes to the product mix; another 64 percent of broker-dealers responded that they have not made changes to their internal compensation arrangements to accommodate the Fiduciary Rule.55 (It is unclear, however, whether the survey respondents accurately represent the overall industry.) Another commenter urged the Department to consider that the delay would unfairly harm firms that expended resources for timely compliance with the Fiduciary Rule and create an unlevel playing field with non-compliant firms.56 One commenter estimated that an 18-month delay would cost investors about $10.9 billion over 30 years assuming a 50 percent compliance rate.57 Based on this commenter’s estimated investor losses, several commenters claimed that the Department cannot justify the delay because investor losses outweigh the estimated compliance cost savings.58 The Department carefully reviewed and weighed these comments and the referenced reports on potential investor losses caused by this delay. Steps some firms already have taken toward compliance, if not reversed, may limit investor losses. By some accounts, 59 compliance efforts may be most advanced among the larger firms that account for the majority of the market, so the number of retirement investors potentially benefiting from compliance efforts might be large. Firms may be especially motivated to comply in connection with advice on rollovers from ERISA-covered plans to IRAs, where they may face liability for any fiduciary breaches under ERISA itself. Nonetheless, gaps in compliance may subject investors to some potentially avoidable losses, of uncertain incidence and magnitude. These potential losses, however, must be weighed against the costs that firms and investors would incur if the January 1, 2018 applicability date were not 55 John Crabb, International Financial Law Review, October 2017, ‘‘The Fiduciary Rule Poll.’’ 56 Comment Letter #84 (Better Markets). 57 See Comment Letter #44 (Economic Policy Institute). According to this comment, the investor losses over 30 years would range from $5.5 billion (75 percent compliance rate) to $16.3 billion (25 percent compliance rate). 58 See, e.g., Comment Letter #80 (Consumer Federation of America); Comment Letter #91 (Public Investors Arbitration Bar Association); Comment Letter #120 (AFL–CIO); Comment Letter #126 (Institute for Policy Integrity at New York University School of Law). 59 John Crabb, International Financial Law Review, October 2017, ‘‘The Fiduciary Rule Poll.’’ According to this report, some firms already adopted fiduciary standards for business reasons; therefore, they would continue to comply with the rule using the adopted changes during this transition period. VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 delayed. Absent delay, firms would be forced to rush to comply with provisions that the Department may soon revise or rescind. Notwithstanding whatever steps firms already have taken toward compliance, it is likely that for many, such a rush to comply would be costly, disruptive, and/or infeasible. Smaller firms, which may be least prepared to comply fully, might be affected most. The disruption also could adversely affect many investors. Some of the costs incurred could turn out to be wasted if costly provisions are later revised or rescinded—and subsequent implementation of revised provisions might sow confusion and yield additional disruption. This delay will avert such disruption along with the potentially wasted cost of complying with provisions that the Department later revises or rescinds. In addition, the Department notes that some commenters’ observations that investor losses from this delay may exceed associated compliance cost savings do not reflect the totality of economic considerations properly at hand. While some investor losses will reflect decreases in overall social welfare, others will reflect transfers from investors to the financial industry, which, while undesirable, are not social costs per se. Compliance costs in turn represent only some of the societal costs that may be averted by this delay. Others include those attributable to the potential disruption and confusion that could adversely affect both firms and investors. The Department acknowledges uncertainty surrounding potential investor losses from this delay. On balance, however, the Department concludes that the delay is justified, insofar as avoiding the market disruption that would occur if regulated parties incur costs to comply quickly with conditions or requirements the Department subsequently revises or repeals and the resultant significant consumer confusion justifies any attendant investor losses. b. Cost Savings Some firms that are fiduciaries under the Fiduciary Rule may have committed resources to implementing procedures to support compliance with their fiduciary obligations. This may include changing their compensation structures and monitoring the practices and procedures of their advisers to ensure that conflicts of interest do not cause violations of the Fiduciary Rule and Impartial Conduct Standards of the PTEs, and maintaining sufficient records to corroborate that they are complying with the Fiduciary Rule and PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 PTEs. These firms have considerable flexibility to choose precisely how they will achieve compliance with the PTEs during the extended transition period. According to some commenters, the majority of broker-dealers have not yet made any changes to their internal compensation arrangements and have not fully developed monitoring systems.60 The Department does not have sufficient data to estimate such costs; therefore, they are not quantified here. Some commenters have asserted that the delay could result in cost savings for firms compared to the costs that were estimated in the Department’s 2016 RIA to the extent that the requirements of the Fiduciary Rule and PTE conditions are modified in a way that would result in less expensive compliance costs. However, the Department generally believes that start-up costs not yet incurred for requirements previously scheduled to become applicable on January 1, 2018, should not be included, at this time, as a cost savings associated with this rule because the rule would merely delay the full implementation of certain conditions in the PTEs until July 1, 2019, while the Department considers whether to propose changes and alternatives to the exemptions. The Department would be required to assume for purposes of this regulatory impact analysis that those start-up costs that have not been incurred generally would be delayed rather than avoided unless or until the Department acts to modify the compliance obligations of firms and advisers to make them more efficient. Nonetheless, even based on that assumption, there may be some cost savings that could be quantified as arising from the delay because some ongoing costs would not be incurred until July 1, 2019. The Department has taken two approaches to quantifying the savings resulting from the delay in incurring such ongoing costs: (1) Quantifying the costs based on a shift in the time horizon of the costs (i.e., comparing the present value of the costs of complying over a ten year period beginning on January 1, 2018, with the costs of complying, instead, over a ten year period beginning on July 1, 2019); and (2) quantifying the reduced costs during the 18-month period of delay from January 1, 2018, to July 1, 2019, during which time regulated parties would otherwise have had to comply with the full conditions of the BIC 60 See, e.g., Comment Letter #80 (Consumer Federation of America); Greg Iacurici, Investment News, August 16, 2017, ‘‘Anticipating delay to DOL fiduciary rule, broker-dealers and RIAs change course.’’ E:\FR\FM\29NOR1.SGM 29NOR1 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES Exemption and Principal Transaction Exemption but for the delay. The first of the two approaches reflects the time value of money (i.e., the idea that money available at the present time is worth more than the same amount of money in the future, because that money can earn interest). The deferral of ongoing costs by 18 months will allow the regulated community to use money they would have spent on ongoing compliance costs for other purposes during that time period. The Department estimates that the ten-year present value of the cost savings arising from this 18 month deferral of ongoing compliance costs, and the regulated community’s resulting ability to use the money for other purposes, is $551.6 million using a three percent discount rate 61 and $1.0 billion using a seven percent discount rate.62 The second of the two approaches simply estimates the expenses foregone during the period from January 1, 2018, to July 1, 2019, as a result of the delay. When the Department published the Fiduciary Rule and accompanying PTEs, it calculated that the total ongoing compliance costs of the Fiduciary Rule and PTEs were $1.5 billion annually. Therefore, the Department estimates the ten-year present value of the cost savings of firms not being required to incur ongoing compliance costs during an 18 month delay would be approximately $2.2 billion using a three percent discount rate 63 and $2.0 billion using a seven percent discount rate.64 65 Based on its progress thus far with the review and reexamination directed by the President, however, the Department believes there may be evidence supporting alternatives that reduce costs and increase benefits to all affected parties, while maintaining protections for retirement investors. The Department anticipates that it will have a clearer sense of the range of such alternatives once it completes a careful 61 Annualized over ten years to $64.7 million per year or over a perpetual time horizon, discounted back to 2016, to $15.6 million per year. 62 Annualized over ten years to $143.9 million per year or over a perpetual time horizon, discounted back to 2016, to $61.8 million per year. 63 Annualized over ten years to $252.1 million per year or over a perpetual time horizon, discounted back to 2016, to $57.3 million per year. 64 Annualized over ten years to $291.1 million per year or over a perpetual time horizon, discounted back to 2016, to $109.2 million per year. 65 The Department notes that firms may be incurring some costs to comply with the impartial conduct standards; however, it does not have sufficient data to estimate these costs. The Department, as it continues to update its analysis of the rule, solicits comments on the costs of complying with the impartial conduct standards, and how these costs interact with the costs of all other facets of compliance with the conditions of the PTEs. VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 review of the data and evidence submitted in response to the RFI. The Department also cannot determine at this time the degree to which the infrastructure that affected firms have already established to ensure compliance with the Fiduciary Rule and PTEs exemptions would be sufficient to facilitate compliance with the Fiduciary Rule and PTEs conditions if they are modified in the future. c. Alternatives Considered While the Department considered several alternatives that were informed by public comments, the Department’s chosen alternative in this final rule is likely to yield the most desirable outcome, including avoidance of investor losses otherwise associated with costly market disruptions. In weighing different options, the Department took numerous factors into account. The Department’s objective was to facilitate orderly marketplace innovation and avoid unnecessary confusion and uncertainty in the investment advice market and associated expenses for America’s workers and retirees. The Department solicited comments at the proposed rule stage regarding whether it should adopt an extension that would end (1) a specified period after the occurrence of a specific event (a contingent approach) or (2) on the earlier or the later of (a) a time certain and (b) the end of a specified period after the occurrence of a specific event (a tiered approach). Several commenters supported a contingent or tiered approach,66 while others expressed concern that a potentially indefinite delay might erode compliance with the Impartial Conduct Standards. The Department decided not to adopt these approaches, because they could inject too much uncertainty into the market and cause investor confusion. As discussed above in this preamble, some commenters urged the Department to require firms to comply with the original transitional requirements of the exemptions, not just the Impartial Conduct Standards.67 The Department 66 See, e.g., Comment Letter #48 (American Council of Life Insurers); Comment Letter #51 (Morgan Stanley); Comment Letter #57 (Pacific Life Insurance Company); Comment Letter #73 (Raymond James Financial); Comment Letter #82 (Standard Insurance Company and Standard Retirement Services, Inc.); Comment Letter #112 (Northwestern Mutual Life Insurance Company); Comment Letter #121 (HSBC North America Holdings Inc.); Comment Letter #124 (Morgan, Lewis & Bockius LLP). 67 See, e.g. Comment Letter #80 (Consumer Federation of America) (‘‘at a bare minimum, the Department must require firms and advisers to comply with the original transitional requirements of the exemptions, as set forth in Section IX of the PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 56557 declines this suggestion for now but agrees to give the matter further consideration during the course of the reexamination. The efficacy and effect of these transitional requirements need to be considered very carefully as the Department considers possible changes to the exemptions and their disclosure requirements. The Department is concerned that after completing its reexamination, it might change the disclosure requirements, the implementation of which would have imposed approximately $50.4 million of operational costs 68 plus additional start-up costs. The Department also considered not extending the transition period, which would mean that the remaining conditions in the PTEs would become applicable on January 1, 2018. The Department rejected this alternative because it would not provide sufficient time for the Department to complete its ongoing review of, or propose and finalize any changes to the Fiduciary Rule and PTEs. Moreover, absent the extended transition period, Financial Institutions and Advisers would feel compelled to prepare for full compliance with PTE conditions that become applicable on January 1, 2018, despite the possibility that the Department might identify and adopt more efficient alternatives or other significant changes to the rule. This could lead to unnecessary compliance costs and market disruptions. As compared to a shorter delay with the BIC Exemption and Section VII of the Principal Transactions Exemption, not just the Impartial Conduct Standards. These include: (1) The minimal transition written disclosure requirements in which firms acknowledge their fiduciary status and that of their advisers with respect to their advice, state the Impartial Conduct Standards and provide a commitment to adhere to them, and describe the firm’s material conflicts of interest and any limitations on product offering; (2) the requirement that firms designate a person responsible for addressing material conflicts of interest and monitoring advisers’ adherence to the Impartial Conduct Standards; and (3) the requirement that firms maintain records necessary to prove that the conditions of the exemption have been met.’’). 68 Using the same methodology that was used to calculate the burden of the transition disclosure that was originally envisioned in the April 2016 final rule and exemptions, the Department estimates that during the transition period, 34.2 million transition disclosures would be produced to comply with the requirements of the Best Interest Contract Exemption at a cost of $47.2 million, and 2.7 million transition disclosures would be produced to comply with the requirements of the Principal Transactions Exemption at a cost of $3.2 million. These estimates assume that all investment advice clients receiving advice covered by the applicable exemptions between January 1, 2018 and December 31, 2018 would receive the transition disclosures and all new investment advice clients receiving advice covered by the applicable exemptions between January 1, 2019 and June 30, 2019 would receive the transition disclosures. E:\FR\FM\29NOR1.SGM 29NOR1 56558 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES possibility of consecutive additional delays, if needed, the 18-month delay provides more certainty for affected stakeholders because it sets a firm date for full compliance, which allows for proper planning and reliance. 2. Paperwork Reduction Act The Paperwork Reduction Act (PRA) (44 U.S.C. 3501, et seq.) prohibits federal agencies from conducting or sponsoring a collection of information from the public without first obtaining approval from the Office of Management and Budget (OMB). See 44 U.S.C. 3507. Additionally, members of the public are not required to respond to a collection of information, nor be subject to a penalty for failing to respond, unless such collection displays a valid OMB control number. See 44 U.S.C. 3512. OMB has previously approved information collections contained in the Fiduciary Rule and PTEs. The Department now is extending the transition period for the full conditions of the PTEs associated with its Fiduciary Rule until July 1, 2019. The Department is not modifying the substance of the information collections at this time; however, the current OMB approval periods of the information collection requests (ICRs) expire before the new applicability date for the full conditions of the PTEs as they currently exist. Therefore, many of the information collections will remain inactive for the remainder of the current ICR approval periods. The ICRs contained in the exemptions are discussed below. PTE 2016–01, the Best Interest Contract Exemption: The information collections in PTE 2016–01, the BIC Exemption, are approved under OMB Control Number 1210–0156 through June 30, 2019. The exemption requires disclosure of material conflicts of interest and basic information relating to those conflicts and the advisory relationship (Sections II and III), contract disclosures, contracts and written policies and procedures (Section II), pre-transaction (or point of sale) disclosures (Section III(a)), web-based disclosures (Section III(b)), documentation regarding recommendations restricted to proprietary products or products that generate third-party payments (Section IV), notice to the Department of a Financial Institution’s intent to rely on the PTE, and maintenance of records necessary to prove that the conditions of the PTE have been met (Section V). Although the start-up costs of the information collections as they are set forth in the current PTE may not be incurred prior to June 30, 2019 due to VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 uncertainty surrounding the Department’s ongoing consideration of whether to propose changes and alternatives to the exemptions, they are reflected in the revised burden estimate summary below. The ongoing costs of the information collections will remain inactive through the remainder of the current approval period. For a more detailed discussion of the information collections and associated burden of this PTE, see the Department’s PRA analysis at 81 FR 21002, 21071. PTE 2016–02, the Prohibited Transaction Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Principal Transactions Exemption): The information collections in PTE 2016–02, the Principal Transactions Exemption, are approved under OMB Control Number 1210–0157 through June 30, 2019. The exemption requires Financial Institutions to provide contract disclosures and contracts to Retirement Investors (Section II), adopt written policies and procedures (Section IV), make disclosures to Retirement Investors and on a publicly available Web site (Section IV), maintain records necessary to prove they have met the PTE conditions (Section V). Although the start-up costs of the information collections as they are set forth in the current PTE may not be incurred prior to June 30, 2019, due to uncertainty surrounding the Department’s ongoing consideration of whether to propose changes and alternatives to the exemptions, they are reflected in the revised burden estimate summary below. The ongoing costs of the information collections will remain inactive through the remainder of the current approval period. For a more detailed discussion of the information collections and associated burden of this PTE, see the Department’s PRA analysis at 81 FR 21089, 21129. Amended PTE 84–24: The information collections in Amended PTE 84–24 are approved under OMB Control Number 1210–0158 through June 30, 2019. As amended, Section IV(b) of PTE 84–24 requires Financial Institutions to obtain advance written authorization from an independent plan fiduciary or IRA holder and furnish the independent fiduciary or IRA holder with a written disclosure in order to receive commissions in conjunction with the purchase of insurance and annuity contracts. Section IV(c) of PTE 84–24 requires investment company Principal Underwriters to obtain approval from an independent fiduciary PO 00000 Frm 00028 Fmt 4700 Sfmt 4700 and furnish the independent fiduciary with a written disclosure in order to receive commissions in conjunction with the purchase by a plan of securities issued by an investment company Principal Underwriter. Section V of PTE 84–24, as amended, requires Financial Institutions to maintain records necessary to demonstrate that the conditions of the PTE have been met. The rule delays the applicability date of amendments to PTE 84–24 until July 1, 2019, except that the Impartial Conduct Standards became applicable on June 9, 2017. The Department does not have sufficient data to estimate that number of respondents that will use PTE 84–24 with the inclusion of Impartial Conduct Standards but delayed applicability date of amendments. Therefore, the Department has not revised its burden estimate. For a more detailed discussion of the information collections and associated burden of this PTE, see the Department’s PRA analysis at 81 FR 21147, 21171. These paperwork burden estimates, which comprise start-up costs that will be incurred prior to the July 1, 2019, effective date (and the June 30, 2019, expiration date of the current approval periods), are summarized as follows: Agency: Employee Benefits Security Administration, Department of Labor. Titles: (1) Best Interest Contract Exemption and (2) Final Investment Advice Regulation. OMB Control Number: 1210–0156. Affected Public: Businesses or other for-profits; not for profit institutions. Estimated Number of Respondents: 19,890 over the three-year period; annualized to 6,630 per year. Estimated Number of Annual Responses: 34,046,054 over the threeyear period; annualized to 11,348,685 per year. Frequency of Response: When engaging in exempted transaction. Estimated Total Annual Burden Hours: 2,125,573 over the three-year period; annualized to 708,524 per year. Estimated Total Annual Burden Cost: $2,468,487,766 during the three-year period; annualized to $822,829,255 per year. Agency: Employee Benefits Security Administration, Department of Labor. Titles: (1) Prohibited Transaction Exemption for Principal Transactions in Certain Assets between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs and (2) Final Investment Advice Regulation. OMB Control Number: 1210–0157. Affected Public: Businesses or other for-profits; not for profit institutions. E:\FR\FM\29NOR1.SGM 29NOR1 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations pmangrum on DSK3GDR082PROD with RULES Estimated Number of Respondents: 6,075 over the three-year period; annualized to 2,025 per year. Estimated Number of Annual Responses: 2,463,802 over the three-year period; annualized to 821,267 per year. Frequency of Response: When engaging in exempted transaction; Annually. Estimated Total Annual Burden Hours: 45,872 over the three-year period; annualized to 15,291 per year. Estimated Total Annual Burden Cost: $1,955,369,661 over the three-year period; annualized to $651,789,887 per year. Agency: Employee Benefits Security Administration, Department of Labor. Titles: (1) Prohibited Transaction Exemption (PTE) 84–24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies and Investment Company Principal Underwriters and (2) Final Investment Advice Regulation. OMB Control Number: 1210–0158. Affected Public: Businesses or other for-profits; not for profit institutions. Estimated Number of Respondents: 21,940. Estimated Number of Annual Responses: 3,306,610. Frequency of Response: Initially, Annually, When engaging in exempted transaction. Estimated Total Annual Burden Hours: 172,301 hours. Estimated Total Annual Burden Cost: $1,319,353. 3. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes certain requirements with respect to Federal Rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 et seq.) or any other laws. Unless the head of an agency certifies that a final rule is not likely to have a significant economic impact on a substantial number of small entities, section 604 of the RFA requires that the agency present a final regulatory flexibility analysis (FRFA) describing the rule’s impact on small entities and explaining how the agency made its decisions with respect to the application of the rule to small entities. Small entities include small businesses, organizations and governmental jurisdictions. The final rule merely extends the transition period for the PTEs associated with the Fiduciary Rule. The impact on small entities will be determined when the Department issues future guidance after concluding its review of the rule VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 and exemption. Any future guidance will be subject to notice and comment and contain a Regulatory Flexibility Act analysis. Accordingly, pursuant to section 605(b) of the RFA, the Deputy Assistant Secretary of the Employee Benefits Security Administration hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities. 4. Congressional Review Act This final rule is subject to the Congressional Review Act (CRA) provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the Comptroller General for review. The final rule is a ‘‘major rule’’ as that term is defined in 5 U.S.C. 804, because it is likely to result in an annual effect on the economy of $100 million or more. 5. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (adjusted annually for inflation with the base year 1995) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector. For purposes of the Unfunded Mandates Reform Act, as well as Executive Order 12875, this final rule does not include any federal mandate that the Department expects would result in such expenditures by State, local, or tribal governments, or the private sector. The Department also does not expect that the delay will have any material economic impacts on State, local or tribal governments, or on health, safety, or the natural environment. 6. Executive Order 13771: Reducing Regulation and Controlling Regulatory Costs The impacts of this final rule are categorized consistently with the analysis of the original Fiduciary Rule and PTEs, and the Department has also concluded that the impacts identified in the RIA accompanying the Fiduciary Rule may still be used as a basis for estimating the potential impacts of this final rule. It has been determined that, for purposes of E.O. 13771, the impacts of the Fiduciary Rule that were identified in the 2016 analysis as costs, and that are presently categorized as cost savings (or negative costs) in this final rule, and impacts of the Fiduciary Rule that were identified in the 2016 analysis as a combination of transfers PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 56559 and positive benefits are categorized as a combination of (opposite-direction) transfers and negative benefits in this final rule. Accordingly, OMB has determined that this final rule is an E.O. 13771 deregulatory action. G. List of Amendments to Prohibited Transaction Exemptions The Secretary of Labor has discretionary authority to grant administrative exemptions under ERISA and the Code on an individual or class basis, but only if the Secretary first finds that the exemptions are (1) administratively feasible, (2) in the interests of plans and their participants and beneficiaries and IRA owners, and (3) protective of the rights of the participants and beneficiaries of such plans and IRA owners. 29 U.S.C. 1108(a); see also 26 U.S.C. 4975(c)(2). The Secretary of Labor has found that the delay finalized below is: (1) Administratively feasible, (2) in the interests of plans and their participants and beneficiaries and IRA owners, and (3) protective of the rights of participants and beneficiaries of such plans and IRA owners. Under this authority, and based on the reasons set forth above, the Department is amending the: (1) Best Interest Contract Exemption (PTE 2016– 01); (2) Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016–02); and (3) Prohibited Transaction Exemption 84–24 (PTE 84– 24) for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters, as set forth below. These amendments are effective on January 1, 2018. 1. The BIC Exemption (PTE 2016–01) is amended as follows: A. The date ‘‘January 1, 2018’’ is deleted and ‘‘July 1, 2019’’ inserted in its place in the introductory DATES section. B. Section II(h)(4)—Level Fee Fiduciaries provides streamlined conditions for ‘‘Level Fee Fiduciaries.’’ The date ‘‘January 1, 2018’’ is deleted and ‘‘July 1, 2019’’ inserted in its place. Thus, for Level Fee Fiduciaries that are robo-advice providers, and therefore not eligible for Section IX (pursuant to Section IX(c)(3)), the Impartial Conduct Standards in Section II(h)(2) are applicable June 9, 2017, but the remaining conditions of Section II(h) are applicable July 1, 2019, rather than January 1, 2018. C. Section II(a)(1)(ii) provides for the amendment of existing contracts by E:\FR\FM\29NOR1.SGM 29NOR1 56560 Federal Register / Vol. 82, No. 228 / Wednesday, November 29, 2017 / Rules and Regulations negative consent. The date ‘‘January 1, 2018’’ is deleted where it appears in this section, including in the definition of ‘‘Existing Contract,’’ and ‘‘July 1, 2019’’ inserted in its place. D. Section IX—Transition Period for Exemption. The date ‘‘January 1, 2018’’ is deleted and ‘‘July 1, 2019’’ inserted in its place. Thus, the Transition Period identified in Section IX(a) is extended from June 9, 2017, to July 1, 2019, rather than June 9, 2017, to January 1, 2018. 2. The Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016–02), is amended as follows: A. The date ‘‘January 1, 2018’’ is deleted and ‘‘July 1, 2019’’ inserted in its place in the introductory DATES section. B. Section II(a)(1)(ii) provides for the amendment of existing contracts by negative consent. The date ‘‘January 1, 2018’’ is deleted where it appears in this section, including in the definition of ‘‘Existing Contract,’’ and ‘‘July 1, 2019’’ inserted in its place. C. Section VII—Transition Period for Exemption. The date ‘‘January 1, 2018’’ is deleted and ‘‘July 1, 2019’’ inserted in its place. Thus, the Transition Period identified in Section VII(a) is extended from June 9, 2017, to July 1, 2019, rather than June 9, 2017, to January 1, 2018. 3. Prohibited Transaction Exemption 84–24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters, is amended as follows: A. The date ‘‘January 1, 2018’’ is deleted where it appears in the introductory DATES section and ‘‘July 1, 2019’’ inserted in its place. Signed at Washington, DC, this 24th day of November 2017. Jeanne Klinefelter Wilson, Acting Assistant Secretary, Employee Benefits Security Administration, Department of Labor. [FR Doc. 2017–25760 Filed 11–27–17; 11:15 am] pmangrum on DSK3GDR082PROD with RULES BILLING CODE 4510–29–P VerDate Sep<11>2014 15:16 Nov 28, 2017 Jkt 244001 DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2560 RIN 1210–AB39 Claims Procedure for Plans Providing Disability Benefits; 90-Day Delay of Applicability Date Employee Benefits Security Administration, Department of Labor. ACTION: Final rule; delay of applicability date. AGENCY: This document delays for ninety (90) days—through April 1, 2018—the applicability of a final rule amending the claims procedure requirements applicable to ERISAcovered employee benefit plans that provide disability benefits (Final Rule). The Final Rule was published in the Federal Register on December 19, 2016, became effective on January 18, 2017, and was scheduled to become applicable on January 1, 2018. The delay announced in this document is necessary to enable the Department of Labor to carefully consider comments and data as part of its effort, pursuant to Executive Order 13777, to examine regulatory alternatives that meet its objectives of ensuring the full and fair review of disability benefit claims while not imposing unnecessary costs and adverse consequences. DATES: The amendments are effective on January 1, 2018. FOR FURTHER INFORMATION CONTACT: Frances P. Steen, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693– 8500. This is not a toll free number. SUPPLEMENTARY INFORMATION: SUMMARY: A. Background Section 503 of the Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’), requires that every employee benefit plan shall establish and maintain reasonable procedures governing the filing of benefit claims, notification of benefit determinations, and appeal of adverse benefit determinations. In accordance with its authority under ERISA section 503, and its general regulatory authority under ERISA section 505, the Department of Labor (‘‘Department’’) previously established regulations setting forth minimum requirements for employee benefit plan procedures pertaining to claims for benefits by participants and beneficiaries. 29 CFR 2560.503–1. PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 On December 19, 2016, the Department published a final regulation (‘‘Final Rule’’) amending the existing claims procedure regulation; the Final Rule revised the claims procedure rules for ERISA-covered employee benefit plans that provide disability benefits. The Final Rule was made effective January 18, 2017, but the Department delayed its applicability until January 1, 2018, in order to provide adequate time for disability benefit plans and their affected service providers to adjust to it, as well as for consumers and others to understand the changes made. On February 24, 2017, the President issued Executive Order 13777 (‘‘E.O. 13777’’), entitled Enforcing the Regulatory Reform Agenda.1 E.O. 13777 is intended to reduce the regulatory burdens agencies place on the American people, and directs federal agencies to undertake specified activities to accomplish that objective. As a first step, E.O. 13777 requires the designation of a Regulatory Reform Officer and the establishment of a Regulatory Reform Task Force within each federal agency covered by the Order. The Task Forces were directed to evaluate existing regulations and make recommendations regarding those that can be repealed, replaced, or modified to make them less burdensome. E.O. 13777 also requires that Task Forces seek input from entities significantly affected by regulations, including state, local and tribal governments, small businesses, consumers, nongovernmental organizations, and trade associations. Not long thereafter, certain stakeholders asserted in writing that the Final Rule will drive up disability benefit plan costs, cause an increase in litigation, and consequently impair workers’ access to disability insurance protections.2 In support of these assertions, the stakeholders said, among 1 82 FR 12285 (March 1, 2017). of the stakeholders also asserted a comment that was previously provided with respect to the 2015 proposed amendments, specifically that the Department exceeded its authority and acted contrary to Congressional intent by applying certain ACA protections to disability benefit claims, arguing that if Congress had wanted these protections to apply to disability benefit claims, it would have expressly extended the claims and appeals rules in section 2719 of the Public Health Service Act to plans that provide disability benefits. However, the Department did not take the position that the ACA compelled the changes in the Final Rule. Rather, because disability claims commonly involve medical considerations, the Department was of the view that disability benefit claimants should receive procedural protections similar to those that apply to group health plans, and thus it made sense to model the Final Rule on procedural protections and consumer safeguards that Congress established for group health care claimants under the ACA. 2 Some E:\FR\FM\29NOR1.SGM 29NOR1

Agencies

[Federal Register Volume 82, Number 228 (Wednesday, November 29, 2017)]
[Rules and Regulations]
[Pages 56545-56560]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25760]


=======================================================================
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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application Number D-11712; D-11713; D-11850]
ZRIN 1210-ZA27


18-Month Extension of Transition Period and Delay of 
Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); 
Class Exemption for Principal Transactions in Certain Assets Between 
Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 
2016-02); Prohibited Transaction Exemption 84-24 for Certain 
Transactions Involving Insurance Agents and Brokers, Pension 
Consultants, Insurance Companies, and Investment Company Principal 
Underwriters (PTE 84-24)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Extension of the transition period for PTE amendments.

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SUMMARY: This document extends the special transition period under 
sections II and IX of the Best Interest Contract Exemption and section 
VII of the Class Exemption for Principal Transactions in Certain Assets 
between Investment Advice Fiduciaries and Employee Benefit Plans and 
IRAs for 18 months. This document also delays the applicability of 
certain amendments to Prohibited Transaction Exemption 84-24 for the 
same period. The primary purpose of the amendments is to give the 
Department of Labor the time necessary to consider public comments 
under the criteria set forth in the Presidential Memorandum of February 
3, 2017, including whether possible changes and alternatives to these 
exemptions would be appropriate in light of the current comment record 
and potential input from, and action by, the Securities and Exchange 
Commission and state insurance commissioners. The Department is 
granting the delay because of its concern that, without a delay in the 
applicability dates, consumers may face significant confusion, and 
regulated parties may incur undue expense to comply with conditions or 
requirements that the Department ultimately determines to revise or 
repeal. The former transition period was from June 9, 2017, to January 
1, 2018. The new transition period ends on July 1, 2019, rather than on 
January 1, 2018. The amendments to these exemptions affect participants 
and beneficiaries of plans, IRA owners and fiduciaries with respect to 
such plans and IRAs.

DATES: This document extends the special transition period under 
sections II and IX of the Best Interest Contract Exemption and section 
VII of the Class Exemption for Principal Transactions in Certain Assets 
between Investment Advice Fiduciaries and Employee Benefit Plans and 
IRAs (82 FR 16902) to July 1, 2019, and delays the applicability of 
certain amendments to Prohibited Transaction Exemption 84-24 from 
January 1, 2018 (82 FR 16902) until July 1, 2019. See Section G of the 
SUPPLEMENTARY INFORMATION section for a list of dates for the 
amendments to the prohibited transaction exemptions.

FOR FURTHER INFORMATION CONTACT: Brian Shiker or Susan Wilker, 
telephone (202) 693-8824, Office of Exemption Determinations, Employee 
Benefits Security Administration.

SUPPLEMENTARY INFORMATION: 

A. Procedural Background

ERISA & the 1975 Regulation

    Section 3(21)(A)(ii) of the Employee Retirement Income Security Act 
of 1974, as amended (ERISA), in relevant part provides that a person is 
a fiduciary with respect to a plan to the extent he or she renders 
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. Section 4975(e)(3)(B) of the 
Internal Revenue Code (``Code'') has a parallel

[[Page 56546]]

provision that defines a fiduciary of a plan (including an individual 
retirement account or individual retirement annuity (IRA)). The 
Department of Labor (``the Department'') in 1975 issued a regulation 
establishing a five-part test under this section of ERISA. See 29 CFR 
2510.3-21(c)(1) (2015).\1\ The Department's 1975 regulation also 
applied to the definition of fiduciary in the Code.
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    \1\ The 1975 Regulation was published as a final rule at 40 FR 
50842 (Oct. 31, 1975).
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The New Fiduciary Rule & Related Exemptions

    On April 8, 2016, the Department replaced the 1975 regulation with 
a new regulatory definition (the ``Fiduciary Rule''). The Fiduciary 
Rule defines who is a ``fiduciary'' of an employee benefit plan under 
section 3(21)(A)(ii) of ERISA as a result of giving investment advice 
to a plan or its participants or beneficiaries for a fee or other 
compensation. The Fiduciary Rule also applies to the definition of a 
``fiduciary'' of a plan in the Code pursuant to Reorganization Plan No. 
4 of 1978, 5 U.S.C. App. 1, 92 Stat. 3790. The Fiduciary Rule treats 
persons who provide investment advice or recommendations for a fee or 
other compensation with respect to assets of a plan or IRA as 
fiduciaries in a wider array of advice relationships than was true 
under the 1975 regulation. On the same date, the Department published 
two new administrative class exemptions from the prohibited transaction 
provisions of ERISA (29 U.S.C. 1106) and the Code (26 U.S.C. 
4975(c)(1)) (the Best Interest Contract Exemption (BIC Exemption) and 
the Class Exemption for Principal Transactions in Certain Assets 
Between Investment Advice Fiduciaries and Employee Benefit Plans and 
IRAs (Principal Transactions Exemption)) as well as amendments to 
previously granted exemptions (collectively referred to as ``PTEs,'' 
unless otherwise indicated). The Fiduciary Rule and PTEs had an 
original applicability date of April 10, 2017.

Presidential Memorandum

    By Memorandum dated February 3, 2017, the President directed the 
Department to prepare an updated analysis of the likely impact of the 
Fiduciary Rule on access to retirement information and financial 
advice. The President's Memorandum was published in the Federal 
Register on February 7, 2017, at 82 FR 9675. On March 2, 2017, the 
Department published a notice of proposed rulemaking that proposed a 
60-day delay of the applicability date of the Rule and PTEs. The 
proposal also sought public comments on the questions raised in the 
Presidential Memorandum and generally on questions of law and policy 
concerning the Fiduciary Rule and PTEs.\2\ As of the close of the first 
comment period on March 17, 2017, the Department had received nearly 
200,000 comment and petition letters expressing a wide range of views 
on the proposed 60-day delay. Approximately 650 commenters supported a 
delay of 60 days or longer, with some requesting at least 180 days and 
some up to 240 days or a year or longer (including an indefinite delay 
or repeal); approximately 450 commenters opposed any delay. Similarly, 
approximately 15,000 petitioners supported a delay and approximately 
178,000 petitioners opposed a delay.
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    \2\ 82 FR 12319.
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First Delay of Applicability Dates

    On April 7, 2017, the Department promulgated a final rule extending 
the applicability date of the Fiduciary Rule by 60 days from April 10, 
2017, to June 9, 2017 (``April Delay Rule'').\3\ It also extended from 
April 10 to June 9, the applicability dates of the BIC Exemption and 
Principal Transactions Exemption and required investment advice 
fiduciaries relying on these exemptions to adhere only to the Impartial 
Conduct Standards as conditions of those exemptions during a transition 
period from June 9, 2017, through January 1, 2018. The April Delay Rule 
also delayed the applicability of amendments to an existing exemption, 
Prohibited Transaction Exemption 84-24 (PTE 84-24), until January 1, 
2018, other than the Impartial Conduct Standards, which became 
applicable on June 9, 2017. Lastly, the April Delay Rule extended for 
60 days, until June 9, 2017, the applicability dates of amendments to 
other previously granted exemptions. The 60-day delay, including the 
delay of the Impartial Conduct Standards in the BIC Exemption and 
Principal Transactions Exemption, was considered appropriate by the 
Department at that time. Compliance with other conditions for 
transactions covered by these exemptions, such as requirements to make 
specific disclosures and representations of fiduciary compliance in 
written communications with investors, was postponed until January 1, 
2018, by which time the Department intended to complete the examination 
and analysis directed by the Presidential Memorandum.
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    \3\ 82 FR 16902.
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Request for Information

    On July 6, 2017, the Department published in the Federal Register a 
Request for Information (RFI).\4\ The purpose of the RFI was to augment 
some of the public commentary and input received in response to the 
April Delay, and to request comments on issues raised in the 
Presidential Memorandum. In particular, the RFI sought public input 
that could form the basis of new exemptions or changes to the Rule and 
PTEs. The RFI also specifically sought input regarding the advisability 
of extending the January 1, 2018, applicability date of certain 
provisions in the BIC Exemption, the Principal Transactions Exemption, 
and PTE 84-24. Question 1 of the RFI specifically asked whether a delay 
in the January 1, 2018, applicability date of the provisions in the BIC 
Exemption, Principal Transactions Exemption and amendments to PTE 84-24 
would benefit retirement investors by allowing for more efficient 
implementation responsive to recent market developments and reduce 
burdens on financial services providers. Comments relating to an 
extension of the January 1, 2018, applicability date of certain 
provisions were requested by July 21, 2017. All other comments were 
requested by August 7, 2017. The Department received approximately 
60,000 comment and petition letters expressing a wide range of views on 
whether the Department should grant an additional delay and what should 
be the duration of any such delay. Many commenters supported delaying 
the January 1, 2018, applicability dates of these PTEs. Other 
commenters disagreed, however, asserting that full application of the 
Fiduciary Rule and PTEs is necessary to protect retirement investors 
from conflicts of interests, that the original applicability dates 
should not have been delayed from April, 2017, and that the January 1, 
2018, date should not be further delayed. Still others stated their 
view that the Fiduciary Rule and PTEs should be repealed and replaced, 
either with the original 1975 regulation or with a substantially 
revised rule. Among the commenters supporting a delay, some suggested a 
fixed length of time and others suggested a more open-ended delay. 
Supporters of a fixed-length delay did not express a consensus view on 
the appropriate length, but the range generally was 1 to 2 years from 
the current applicability date of January 1,

[[Page 56547]]

2018. Those commenters suggesting a more open-ended framework for 
measuring the length of the delay generally recommended that the 
applicability date be delayed for at least as long as it takes the 
Department to finish the reexamination directed by the President. These 
commenters suggested that the length of the delay should be measured 
from the date the Department, after finishing the reexamination, either 
announces that there will be no new amendments or exemptions or 
publishes a new exemption or major revisions to the Fiduciary Rule and 
PTEs.
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    \4\ 82 FR 31278.
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B. Proposed Amendments--18-Month Delay

    On August 31, 2017, the Department published a proposal (the August 
31 Notice) to extend the current special transition period under 
sections II and IX of the BIC Exemption and section VII of the 
Principal Transactions Exemption from January 1, 2018, to July 1, 2019. 
The Department also proposed in the August 31 Notice to delay the 
applicability of certain amendments to PTE 84-24 for the same 
period.\5\ Although proposing a date-certain delay (18 months), the 
Department specifically asked for input on various alternative 
approaches. The Department received approximately 145 comment letters. 
Approximately 110 commenters support a delay of 18 months or longer; 
and, by contrast, approximately 35 commenters oppose any delay.\6\ The 
Department also received two petitions containing approximately 2,860 
signatures or letters supporting the delay. These comment letters are 
available for public inspection on EBSA's Web site. Specific views and 
positions of commenters are discussed below in section C of this 
document.
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    \5\ 82 FR 41365 (entitled ``Extension of Transition Period and 
Delay of Applicability Dates; Best Interest Contract Exemption (PTE 
2016-01); Class Exemption for Principal Transactions in Certain 
Assets Between Investment Advice Fiduciaries and Employee Benefit 
Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 
for Certain Transactions Involving Insurance Agents and Brokers, 
Pension Consultants, Insurance Companies, and Investment Company 
Principal Underwriters (PTE 84-24)'').
    \6\ The Department includes these counts only to provide a rough 
sense of the scope and diversity of public comments. For this 
purpose, the Department counted letters that do not expressly 
support or oppose the proposed delay, but that express concerns or 
general opposition to the Fiduciary Rule or PTEs, as supporting 
delay. Similarly, letters that do not expressly support or oppose 
the proposed delay, but that express general support for the Rule or 
PTEs, were counted as opposing a delay.
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BIC Exemption (PTE 2016-01) and Principal Transactions Exemption (PTE 
2016-02)

    Although the Fiduciary Rule, BIC Exemption, and Principal 
Transactions Exemption first became applicable on June 9, 2017, with 
transition relief through January 1, 2018, the August 31 Notice 
proposed to extend the Transition Period until July 1, 2019. During 
this extended Transition Period, ``Financial Institutions'' and 
``Advisers,'' as defined in the exemptions, would only have to comply 
with the ``Impartial Conduct Standards'' to satisfy the exemptions' 
requirements. In general, this means that Financial Institutions and 
Advisers must give prudent advice that is in retirement investors' best 
interest, charge no more than reasonable compensation, and avoid 
misleading statements.\7\
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    \7\ In the Principal Transactions Exemption, the Impartial 
Conduct Standards specifically refer to the fiduciary's obligation 
to seek to obtain the best execution reasonably available under the 
circumstances with respect to the transaction, rather than to 
receive no more than ``reasonable compensation.''
---------------------------------------------------------------------------

    The August 31 Notice proposed that the remaining conditions of the 
BIC Exemption would not become applicable until July 1, 2019. Remaining 
conditions include the requirement, for transactions involving IRA 
owners, that the Financial Institution enter into an enforceable 
written contract with the retirement investor. The contract would 
include an enforceable promise to adhere to the Impartial Conduct 
Standards, an express acknowledgement of fiduciary status, and a 
variety of disclosures related to fees, services, and conflicts of 
interest. IRA owners, who do not have statutory enforcement rights 
under ERISA, would be able to enforce their contractual rights under 
state law. Also, as of July 1, 2019, the exemption would require 
Financial Institutions to adopt a substantial number of new policies 
and procedures that meet specified conflict-mitigation criteria. In 
particular, the policies and procedures must be reasonably and 
prudently designed to ensure that Advisers adhere to the Impartial 
Conduct Standards and must provide that neither the Financial 
Institution nor (to the best of its knowledge) its affiliates or 
related entities will use or rely on quotas, appraisals, performance or 
personnel actions, bonuses, contests, special awards, differential 
compensation, or other actions or incentives that are intended or would 
reasonably be expected to cause advisers to make recommendations that 
are not in the best interest of the retirement investor. Also as of 
July 1, 2019, Financial Institutions entering into contracts with IRA 
owners pursuant to the exemption would have to include a warranty that 
they have adopted and will comply with the required policies and 
procedures. Financial Institutions would also be required at that time 
to provide disclosures, both to the individual retirement investor on a 
transaction basis, and on a Web site.
    Similarly, while the Principal Transactions Exemption is 
conditioned solely on adherence to the Impartial Conduct Standards 
during the Transition Period, the August 31 Notice also proposed that 
its remaining conditions would become applicable on July 1, 2019. The 
Principal Transactions Exemption permits investment advice fiduciaries 
to sell to or purchase from plans or IRAs ``principal traded assets'' 
through ``principal transactions'' and ``riskless principal 
transactions''--transactions involving the sale from or purchase for 
the Financial Institution's own inventory. As of July 1, 2019, the 
exemption would require a contract and a policies and procedures 
warranty that mirror the requirements in the BIC Exemption. The 
Principal Transactions Exemption also includes some conditions that are 
different from the BIC Exemption, including credit and liquidity 
standards for debt securities sold to plans and IRAs pursuant to the 
exemption and additional disclosure requirements.

PTE 84-24

    PTE 84-24, which applies to advisory transactions involving 
insurance and annuity contracts and mutual fund shares, was most 
recently amended in 2016 in conjunction with the development of the 
Fiduciary Rule, BIC Exemption, and Principal Transactions Exemption.\8\ 
Among other changes, the amendments included new definitional terms, 
added the Impartial Conduct Standards as requirements for relief, and 
revoked relief for transactions involving fixed indexed annuity 
contracts and variable annuity contracts, effectively requiring those 
Advisers who receive conflicted compensation for recommending these 
products to rely upon the BIC Exemption. However, except for the 
Impartial Conduct Standards, which were applicable beginning June 9, 
2017, the August 31 Notice proposed that the remaining amendments would 
not be applicable until July 1, 2019. Thus, because the amendment 
revoking the availability of PTE 84-24 for fixed indexed annuities 
would not be not be applicable until July 1, 2019, affected parties 
(including

[[Page 56548]]

insurance intermediaries) would be able to rely on PTE 84-24, subject 
to the existing conditions of the exemption and the Impartial Conduct 
Standards, for recommendations involving all annuity contracts during 
the Transition Period.
---------------------------------------------------------------------------

    \8\ 81 FR 21147 (April 8, 2016).
---------------------------------------------------------------------------

C. Comments and Decisions

Extension of the Transition Period

    Based on its review and evaluation of the public comments, the 
Department is adopting the proposed amendments without change. Thus, 
the Transition Period in the BIC Exemption and Principal Transaction 
Exemption is extended for 18 months until July 1, 2019, and the 
applicability date of the amendments to PTE 84-24, other than the 
Impartial Conduct Standards, is delayed for the same period. 
Accordingly, the same rules and standards in effect between June 9, 
2017, and December 31, 2017, will remain in effect throughout the 
duration of the extended Transition Period. Consequently, Financial 
Institutions and Advisers must continue to give prudent advice that is 
in retirement investors' best interest, charge no more than reasonable 
compensation, and avoid misleading statements. As the Department has 
stated previously:

    The Impartial Conduct Standards represent fundamental 
obligations of fair dealing and fiduciary conduct. The concepts of 
prudence, undivided loyalty and reasonable compensation are all 
deeply rooted in ERISA and the common law of agency and trusts. 
These longstanding concepts of law and equity were developed in 
significant part to deal with the issues that arise when agents and 
persons in a position of trust have conflicting loyalties, and 
accordingly, are well-suited to the problems posed by conflicted 
investment advice.\9\
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    \9\ Best Interest Contract Exemption, 81 FR 21002, 21026 (April 
8, 2016) (footnote omitted).

    It is based on the continued adherence to these fundamental 
protections that the Department, pursuant to 29 U.S.C. 1108 and 26 
U.S.C. 4975, is making the necessary findings and granting the 
extension until July 1, 2019.
    A delay of the remaining conditions of the BIC Exemption and 
Principal Transactions Exemption, and of the remaining amendments to 
PTE 84-24, is necessary and appropriate for multiple reasons. To begin 
with, the Department has not yet completed the reexamination of the 
Fiduciary Rule and PTEs, as directed by the President on February 3, 
2017. More time is needed to carefully and thoughtfully review the 
substantial commentary received in response to the multiple 
solicitations for comments in 2017 and to honor the President's 
directive to take a hard look at any potential undue burden. Whether, 
and to what extent, there will be changes to the Fiduciary Rule and 
PTEs as a result of this reexamination is unknown until its completion. 
The examination will help identify any potential alternative exemptions 
or conditions that could reduce costs and increase benefits to all 
affected parties, without unduly compromising protections for 
retirement investors. The Department anticipates that it will have a 
much clearer sense of the range of such alternatives only after it 
completes a careful review of the responses to the RFI. The Department 
also anticipates that it will propose in the near future a new 
streamlined class exemption. However, neither such a proposal nor any 
other changes or modifications to the Fiduciary Rule and PTEs, if any, 
realistically could be finalized by the current January 1, 2018, 
applicability date. Nor would that timeframe accommodate the 
Department's desire to coordinate with the Securities and Exchange 
Commission (SEC) and other regulators, such as the Financial Industry 
Regulatory Authority (FINRA) and the National Association of Insurance 
Commissioners (NAIC) in the development of any such proposal or 
changes. The Chairman of the SEC has recently published a statement 
seeking public comments on the standards of conduct for investment 
advisers and broker-dealers, and has welcomed the Department's 
invitation to engage constructively as the SEC moves forward with its 
examination of the standards of conduct applicable to investment 
advisers and broker-dealers, and related matters. Absent a delay, 
however, Financial Institutions and Advisers would feel compelled to 
ready themselves for the provisions that would become applicable on 
January 1, 2018, despite the possibility of changes and alternatives on 
the horizon. The 18-month delay avoids obligating financial services 
providers to incur costs to comply with conditions, which may be 
revised, repealed, or replaced. The delay also avoids attendant 
investor confusion, ensuring that investors do not receive conflicting 
and confusing statements from their financial advisors as the result of 
any later revisions.
    Not all commenters support this approach. As mentioned above, the 
Department received approximately 145 comment letters on the proposed 
18-month delay. As with earlier comments on the April Delay Rule, as 
well as those received in response to Question 1 of the RFI, there is 
no uniform consensus on whether a delay is appropriate, or on the 
appropriate length of any delay. Some commenters supported the proposed 
18-month delay, some commenters sought longer delays, and still other 
commenters opposed any delay at all. However, a clear majority of 
commenters support a delay of at least 18 months, with many supporting 
a much longer delay.
    The primary reason commenters cited in support of the delay was to 
avoid unnecessary costs of compliance with provisions of the Fiduciary 
Rule and PTEs that the commenters believed could be changed or 
rescinded upon completion of the review under the Presidential 
Memorandum.\10\ Other reasons cited by commenters were to provide time 
for the Department to coordinate with the SEC and other regulators such 
as FINRA and the NAIC; allow more time for industry to come into 
compliance with the Fiduciary Rule and PTEs, including additional time 
to develop disclosures and train employees; and to reduce the 
possibility of client confusion resulting from attempts to comply with 
provisions of the Fiduciary Rule and PTEs that may change following the 
review pursuant to the President's Memorandum.\11\
---------------------------------------------------------------------------

    \10\ See, e.g., Comment Letter #42 (Western & Southern Financial 
Group) (``only after the Fiduciary Regulation has been reviewed and 
revisions to it have been proposed and finalized (all in accordance 
with President Trump's February 3, 2017 memorandum) will WSF&G and 
other similarly situated companies know with certainty what 
conditions will be placed on providing investment advice to 
retirement investors. Only then, can we appropriately design and 
implement compliance structures, make investments in information 
technology, and produce products and services that meet both the 
revised Fiduciary Regulation requirements and the needs of 
retirement investors.''); Comment Letter #76 (Groom Law Group, on 
Behalf of Annuity and Insurance Company Clients) (``[i]n the absence 
of the eighteen-month extension, financial service providers, 
retirement plans, and individual savers would be subjected to 
extreme market dislocations. The pricing of investment products and 
services, the distribution models under which those services are 
delivered and the job responsibilities of thousands of financial 
services firm employees would be subject to severe dislocation as 
new requirements take effect. In addition, retirement savers' access 
to investment advice and the terms and conditions under which that 
investment advice would be provided could change repeatedly and 
dramatically as changes to the Fiduciary Rule are made and new FAQs 
are issued.''); Comment Letter #79 (Investment Company Institute) 
(``[a]bsent a delay, service providers will continue to spend 
significant amounts preparing for January 1, 2018, the vast majority 
of which will be spent implementing the more cumbersome and 
technically complicated aspects of the BIC Exemption conditions.'').
    \11\ See, e.g., Comment Letter #52 (Transamerica) (``to avoid 
wasteful and duplicative compliance costs and business model 
changes'' and ``to permit further time for coordination with the 
SEC.''); Comment Letter #55 (Prudential Financial) (supporting the 
proposed extension/delay as ``sufficient for the Department to 
assess and develop needed Rule changes, engage in meaningful 
coordination with the Securities and Exchange Commission, as well as 
the states and other prudential regulators, and adopt those 
changes'' and also to minimize ``confusion on the part of consumers 
and brings certainty to the financial services industry.''); Comment 
Letter #63 (Massachusetts Mutual Life Insurance Company) (will 
``benefit retirement investors by ensuring that their access to 
products or advice is not needlessly restricted or reduced as a 
result of . . . changes to business models . . . that may prove 
unnecessary,'' and ``will provide time for the Department to 
complete its review of the Fiduciary Rule pursuant to the 
Presidential Memorandum,'' and ``to work with the Securities and 
Exchange Commission and the National Association of Insurance 
Commissioners.''); Comment Letter #88 (AXA US) (``will provide the 
Department with sufficient time to work with other regulators to 
develop a harmonized regulatory framework'' and also ``will allow 
industry participants adequate time to comply with the Rule's final 
requirements''); Comment Letter #375 (Stifel Financial Corp.) (July 
25, 2017, response to RFI) (``Thus, with the Impartial Conduct 
Standards already in place for retirement accounts, the DOL and SEC 
should move together and conduct a proper and fulsome study of 
whether additional requirements are needed to achieve appropriate 
consumer protections while maintaining investor choice. As the DOL 
and SEC study these issues, and to prevent further disruption to 
Brokerage and Advisory business models, it is critical that the DOL 
delay the January 1, 2018 implementation date for the additional 
conditions of the Best Interest Contract Exemption, including the 
contractual warranties, until a solution is determined.'').

---------------------------------------------------------------------------

[[Page 56549]]

    The primary reason commenters gave against the delay is that 
investors will be economically harmed during the 18-month delay period 
because, according to these commenters, there would not be any 
meaningful enforcement mechanism in the PTEs without the contract, 
warranty, disclosure and other enforcement and accountability 
conditions.\12\ According to these commenters, there is no credible 
basis to believe that significant numbers of Financial Institutions and 
Advisers will actually comply with the Impartial Conduct Standards when 
advising investors during the Transition Period without these 
enforcement and accountability conditions. In the view of these 
commenters, the Department's 2016 RIA supports their position that 
compliance numbers will be low with the enforcement and accountability 
conditions being delayed until July 1, 2019. If Financial Institutions 
and Advisers do not adhere to the Impartial Conduct Standards, the 
investor gains predicted in the Department's 2016 RIA for the 
Transition Period will not remain intact, according to these 
commenters, in which case the cost of the 18-month delay would exceed 
its benefits. Assuming twenty-five, fifty, and seventy-five percent 
compliance rates, one commenter estimates that delaying the enforcement 
conditions an additional 18 months would cost retirement savers an 
additional $5.5 billion (75 percent compliance) to $16.3 billion (25 
percent compliance) over 30 years, with a middle estimate of $10.9 
billion (50 percent compliance).\13\ To support adherence to the 
Impartial Conduct Standards during the Transition Period, and thereby 
preserve some predicted investor gains, several of these commenters 
suggested that the Department, at a bare minimum, should add the 
specific disclosure and representation of fiduciary compliance 
conditions originally required for transition relief (but which were 
delayed by the April Delay Rule).\14\ A subset of enforcement 
conditions, less than the full set of conditions scheduled now for July 
1, 2019, would increase the likelihood of greater levels of adherence 
to the Impartial Conduct Standards during the Transition Period over 
those levels of adherence likely if no enforcement conditions are 
included, according to these commenters.
---------------------------------------------------------------------------

    \12\  See, e.g., Comment Letter #20 (Consumer Action) (``no real 
evidence to believe that there will be compliance with the best-
interest rule without enforcement.''); Comment Letter #44 (Economic 
Policy Institute) (``Delaying DOL enforcement an additional 18 
months (from January 1, 2018 to July 1, 2019) would cost retirement 
savers an additional $5.5 billion to $16.3 billion over 30 years, 
with a middle estimate of $10.9 billion.''); Comment Letter #68 
(AARP) (``every day the protections of the prohibited transactions 
class exemptions are delayed the retirement security of hard working 
Americans is put at risk, along with potential negative impacts on 
the economy as a whole.''); Comment Letter #78 (Financial Planning 
Coalition) (``Without the PTEs, consumers do not have access to 
legally binding contracts on which they can rely to uphold their 
right to conflict-free advice in their best interest.''); Comment 
Letter #80 (Consumer Federation of America) (``Extending this 
transition period will mean that the full protections and benefits 
of the fiduciary rule won't be realized and retirement savers, 
particularly IRA investors, will continue to suffer the harmful 
consequences of conflicted advice.''); Comment Letter #81 (National 
Employment Law Project) (``Without any meaningful enforcement 
mechanism, which does not exist in the IRA market without the 
Contract Condition, there is no basis to conclude--as the Department 
erroneously does--that a significant number of investment-advice 
fiduciaries will adhere to the ICSs when advising IRA owners during 
the period of the proposed delay.''); Comment Letter #84 (Better 
Markets) (``The long-term suspension of these accountability 
conditions will remove an important deterrent against violations of 
the Rule, resulting in conflicts of interest taking a greater toll 
on IRA investors in particular and causing greater overall losses in 
retirement savings, especially as they are compounded over time.''); 
Comment Letter #91 (Public Investors Arbitration Bar Association) 
(``If the PTEs are not permitted to be fully implemented on January 
1, 2018, retirement investors will continue to be harmed by the same 
conflicts of interests that made the Rule and PTEs necessary in the 
first place.''); Comment Letter #120 (AFL-CIO) (``The Economic 
Policy Institute estimates that this proposal will cost retirement 
savers between $5.5 billion and $16.3 billion over thirty years--on 
top of the estimated $2.0 billion to $5.9 billion losses resulting 
from the Department's previous delay.''); Comment Letter #126 
(Institute for Policy Integrity at New York University School of 
Law) (``In sum, the Department's proposal that the benefits would 
remain intact even with the postponement of the enforcement 
provisions is at odds with its earlier analysis of the necessity of 
these provisions.'').
    \13\ Comment Letter #44 (Economic Policy Institute).
    \14\ Comment Letter #20 (Consumer Action) (``we recommend that--
at a minimum--the Department require that by January 2018 firms and 
advisers agree to abide by the impartial conduct standard to 
acknowledge their fiduciary status.''); Comment Letter #80 (Consumer 
Federation of America) (``at a bare minimum, the Department must 
require firms and advisers to comply with the original transitional 
requirements of the exemptions, as set forth in Section IX of the 
BIC Exemption and Section VII of the Principal Transactions 
Exemption, not just the Impartial Conduct Standards. These include: 
(1) The minimal transition written disclosure requirements in which 
firms acknowledge their fiduciary status and that of their advisers 
with respect to their advice, state the Impartial Conduct Standards 
and provide a commitment to adhere to them, and describe the firm's 
material conflicts of interest and any limitations on product 
offering; (2) the requirement that firms designate a person 
responsible for addressing material conflicts of interest and 
monitoring advisers' adherence to the Impartial Conduct Standards; 
and (3) the requirement that firms maintain records necessary to 
prove that the conditions of the exemption have been met.'').
---------------------------------------------------------------------------

    Because the contract, warranty, disclosure and other enforcement 
and accountability conditions in the PTEs are intended to support 
adherence to the Impartial Conduct Standards, the Department 
acknowledges that the 18-month delay may result in a deferral of some 
of the estimated investor gains. As discussed below in the regulatory 
impact analysis, the precise amount of such deferral is unknown because 
the precise degree of adherence during the 18-month period also is 
unknown. Many commenters strongly dispute the likelihood of any harm to 
investors as result of the delay of the enforcement and accountability 
conditions. These commenters emphatically believe that investors are 
sufficiently protected by the imposition of the Impartial Conduct 
Standards along with many applicable non-ERISA consumer 
protections.\15\

[[Page 56550]]

Many of these industry commenters note that fiduciary advisers who do 
not provide impartial advice as required by the Fiduciary Rule and PTEs 
in the IRA market would violate the prohibited transaction rules of the 
Code and become subject to the prohibited transaction excise tax. In 
addition, comments received by the Department assert that many 
financial institutions already have completed or largely completed work 
to establish policies and procedures necessary to make many of the 
business structure and practice shifts necessary to support compliance 
with the Fiduciary Rule and Impartial Conduct Standards (e.g., drafting 
and implementing training for staff, drafting client correspondence and 
explanations of revised product and service offerings, negotiating 
changes to agreements with product manufacturers as part of their 
approach to compliance with the PTEs, changing employee and agent 
compensation structures, and designing product offerings that mitigate 
conflicts of interest).\16\ After review of these comments, and meeting 
with stakeholders, the Department believes that many financial 
institutions are using their compliance infrastructure to ensure that 
they currently are meeting the requirements of the Impartial Conduct 
Standards, which the Department believes will substantially protect the 
investor gains estimated in the 2016 RIA. Additionally, the Department 
believes that there are two enforcement mechanisms in place: The 
imposition of excise taxes, and a statutorily-provided cause of action 
for advice to ERISA plan assets, including advice concerning rollovers 
of these assets.\17\ Given these conclusions, the Department declines 
to add additional conditions to the PTEs during the Transition Period, 
but will reevaluate this issue as part of the reexamination of the 
Fiduciary Rule and PTEs and in the context of considering the 
development of additional and more streamlined exemption approaches. 
Accordingly, as the Department continues its reexamination, the 
Department welcomes input and data from stakeholders demonstrating the 
regulated community's implementation of the Impartial Conduct 
Standards.
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    \15\ See, e.g., Comment Letter #11 (Alternative and Direct 
Investment Securities Association) (The Impartial Conduct Standards 
requirement ``can and does go a long way toward ensuring that 
retirement savers are provided with investment advice designed to 
allow them to meet their goals for retirement and otherwise.''); 
Comment Letter # 23 (Wells Fargo) (Because retirement investors will 
continue to receive the protections of the Impartial Conduct 
Standards, ``imposing additional compliance conditions in connection 
with any extension is unnecessary.''); Comment letter #38 (Federal 
Investors, Inc.) (``investor losses (if any) from extending the 
transition period would be expected to be relatively small, and as 
such, outweighed by the cost savings to firms by postponing changes 
that may prove unnecessary, or may have to be revisited''); Comment 
Letter #45 (Madison Securities) (``Because the Impartial Conduct 
Standards remain in place . . . to protect consumers, it is 
important for the Department to take the time necessary to address 
applicable issues and for the financial services industry to build 
adequate and appropriate systems to comply with any final rule.''); 
Comment Letter #50 (Paul Hastings LLP on behalf of Advisors Excel) 
(``with the Impartial Conduct Standards in place during the 
evaluation period, the interests of Retirement Investors are 
protected during the Department's review of the Rule.''); Comment 
Letter #56 (Benjamin F. Edwards & Co.) (``Given that the Impartial 
Conduct Standards are already in place and that there is an 
additional existing and overlapping robust infrastructure of 
regulations that are enforced by the SEC, FINRA, Treasury, and the 
IRS, not to mention the Department, investors are well protected and 
will continue to be well protected during any extension.''); Comment 
Letter #57 (Pacific Life Insurance Company) (``Since advisers are 
now required to adhere to the requirements set forth in the 
Impartial Conduct Standards . . . the Rule's stated goal to 
eliminate conflicted advice has been largely addressed and 
procedures to avoid said conflicted advice will be thoroughly 
engrained in advisers' practices during the delay.''); Comment 
Letter #65 (Securities Industry and Financial Markets Association) 
(``We would also use this opportunity to address the question of the 
potential harm to investors if the Department was to move forward 
with this delay. We would refer the Department back to our comment 
letter of August 9, 2017. . . . In that letter we refute the 
supposed harm to investors if the rule is delayed, while also 
showing the harm if the Department actually moves forward with the 
current rule unchanged. We were concerned then, and are even more 
concerned now, that some of the changes that have taken effect in 
order to comply with this rule, will make it even more difficult for 
investors to save.''); Comment Letter #116 (Financial Services 
Roundtable) (``Any concern that Retirement Investors will be harmed 
by an extended transition period should be allayed because the 
Impartial Conduct Standards will continue to protect them during the 
extended transition period.'').
    \16\ See, e.g., Comment Letter # 39 (Financial Services 
Institute) (incorporating March 17, 2017, response to RFI) (``During 
the transition period . . . financial institutions and financial 
advisors relying on the Best Interest Contract Exemption (BICE) must 
adhere to the Fiduciary Rule's Impartial Conduct Standards. These 
Impartial Conduct Standards require financial institutions and 
advisors to provide advice in the retirement investors' best 
interest, charge no more than reasonable compensation for their 
services and to avoid misleading statements. As a result, firms that 
are relying on the BICE have already implemented procedures to 
ensure that they are meeting these new obligations. These new 
procedures may include changes to the firms' compensation 
structures, restrictions on the availability of certain investment 
products, reductions in the overall number of product and service 
providers, improvements to their due diligence review of products 
and service providers, additional surveillance efforts to monitor 
the sales practices of their affiliated financial advisors for 
compliance and the creation and maintenance of books and records 
sufficient to demonstrate compliance with the Impartial Conduct 
Standards. Thus, investors are already benefitting from stronger 
protections since the Fiduciary Rule became partly applicable on 
June 9, 2017. . . . As a result, we believe any harm to investors 
caused by further delay of the additional requirements, to the 
extent it exists, is greatly reduced by the application of the 
Fiduciary Rule's Impartial Conduct Standards.''). But see Comment 
Letter #141 (Consumer Federation of America) (October 10, 2017 
Supplement) (noting a recent survey of broker-dealers in which 64% 
of survey participants answered that they have not made any changes 
in their product mix or internal compensation structures, and 
concluding therefore that ``it is unreasonable for the Department to 
believe that a significant percentage of firms have made efforts to 
adhere to the rule and Impartial Conduct Standards. If the 
Department does not factor this into its decisionmaking, it will 
have failed to consider an important aspect of the problem.''). See 
also the Department's Conflict of Interest FAQs, Transition Period 
(Set 1), Q6 (``During the transition period, the Department expects 
financial institutions to adopt such policies and procedures as they 
reasonably conclude are necessary to ensure that advisers comply 
with the impartial conduct standards'') available at https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period-1.pdf.
    \17\ 82 FR 16902, 16909 (April 7, 2017).
---------------------------------------------------------------------------

    In this regard, the Department notes that, despite the view of 
several commenters, the duties of prudence and loyalty embedded in the 
Impartial Conduct Standards provide protection to retirement investors 
during the Transition Period, apart from the additional delayed 
enforcement and accountability provisions. The Department previously 
articulated the view that, during the Transition Period, it expects 
that advisers and financial institutions will adopt prudent supervisory 
mechanisms to prevent violations of the Impartial Conduct 
Standards.\18\ Likewise, the Department also previously articulated its 
view that the Impartial Conduct Standards require that fiduciaries, 
during the Transition Period, exercise care in their communications 
with investors, including a duty to fairly and accurately describe 
recommended transactions and compensation practices.\19\
---------------------------------------------------------------------------

    \18\ 81 FR 21002, 21070 (April 8, 2016).
    \19\ 82 FR 16902, 16909 (April 7, 2017) (recognizing fiduciary 
duty to fairly and accurately describe recommended transactions and 
compensation practices).
---------------------------------------------------------------------------

Authority To Delay PTE Conditions/Amendments

    Some commenters questioned the Department's authority to delay the 
PTE conditions and amendments as proposed. They focused their arguments 
on section 705 of the APA (5 U.S.C. 705), which permits an agency to 
postpone the effective date of an action, pending judicial review, if 
the agency finds that justice so requires. These commenters say that 
this provision is the only method by which a federal agency may delay 
or stay the applicability or effective date of a rule, even if another 
statute confers general rulemaking authority on that agency. Since the 
PTEs were applicable to transactions occurring on or after June 9, 
2017, the commenters argue that section 705 of the APA, by its terms, 
is not available in this circumstance. In the absence of the 
availability of section 705 of the APA, they assert, the Department 
lacks authority to delay the applicability date of the PTE conditions 
and amendments, as proposed. However, the Department disagrees that it 
lacks authority to adopt the 18-month delay of the conditions and 
amendments in this circumstance, where the Department is acting through 
and in accordance with its ordinary notice and comment rulemaking 
procedures for PTEs, pursuant to both the APA and 29 U.S.C. 1108. As 
noted elsewhere in the document, the Department is granting

[[Page 56551]]

this delay pursuant to section 408 of ERISA.\20\ Under this provision, 
the Secretary of Labor has discretionary authority to grant 
administrative exemptions, with or without conditions, under ERISA and 
the Code on an individual or class basis, if the Secretary finds that 
the exemptions are (1) administratively feasible, (2) in the interests 
of plans and their participants and beneficiaries and IRA owners, and 
(3) protective of the rights of the participants and beneficiaries of 
such plans and IRA owners. Having made these findings in this case 
after reviewing the substantial public comments received in response to 
the RFI and August 31 Notice, the Department is confident of its 
authority to grant the 18-month delay. In the Department's view, it can 
delay, modify or revoke, temporarily or otherwise, some or all of a 
PTE, using notice and comment rulemaking, as long as--pursuant to the 
appropriate procedures--the Department makes the required findings and 
is not arbitrary or capricious in doing so. The Department has fully 
satisfied those requirements in this case, just as it did when it 
delayed applicability dates from June 9, 2017, through January 1, 2018.
---------------------------------------------------------------------------

    \20\ 29 U.S.C. 1108(a); see also 26 U.S.C. 4975(c)(2).
---------------------------------------------------------------------------

Length of Delay

    Although the August 31 Notice proposed a fixed 18-month delay, the 
proposal also specifically solicited comments on the benefit or harms 
of two alternative delay approaches: (1) A contingent delay that ends a 
specified period after the occurrence of a specific event, such as the 
Department's completion of the reexamination ordered by the President 
or the publication of changes to the Fiduciary Rule or PTEs; and (2) a 
tiered approach postponing full applicability until the earlier of or 
the later of (a) a time certain and (b) the end of a specified period 
after the occurrence of a specific event. There was no consensus among 
the commenters as to either the proper amount of time for a delay or 
the best approach (time certain delay versus contingent or tiered 
delays). Pros and cons were reported on all three approaches.
    Many commenters supported the fixed 18-month delay in the proposal. 
The proposed 18-month period would commence on January 1, 2018, and end 
on July 1, 2019, regardless of exactly when the Department might 
complete its reexamination or take any other action or actions. The 
premise behind this approach is that, whatever action or actions may or 
may not be taken by the Department, such actions would be completed 
within the 18-month period. These commenters believe this approach 
provides more certainty, to both industry stakeholders and investors, 
as compared to the other approaches.\21\ This is these commenters' 
view, even though many of them recognized that an additional delay 
could be needed in the future, depending on the extent of future 
changes to the Fiduciary Rule and PTEs, if any.\22\ These commenters 
believe that certainty is needed for planning and implementation 
purposes and that a flat delay of 18 to 24 months provides that 
certainty.\23\ Even among the

[[Page 56552]]

commenters generally opposed to any delay, one commenter stated that, 
as between a fixed 18-month delay and the more open-ended contingent or 
tiered approaches, the fixed 18-month delay provides more certainty and 
protection to consumers.\24\
---------------------------------------------------------------------------

    \21\ Comment Letter #38 (Federated Investors, Inc.) (``the time-
certain delay is the most appropriate and workable choice under the 
circumstances, because it provides financial services firms, plan 
sponsors, plan participants and beneficiaries, IRA owners with the 
certainty of a clear target date. If the circumstances approaching 
July 1, 2019, indicate the need for a further delay, we would expect 
that the Department will, at that time, evaluate and provide what 
would be a reasonable time period to come into compliance based on 
the nature and extent of any changes to the existing regulation and 
exemptions.''); Comment Letter #39 (Financial Services Institute) 
(tiered delay or conditional delay ``would harm consumers by adding 
uncertainty and confusion to the market, while providing 
insufficient certainty to industry stakeholders.''); Comment Letter 
#46 (American Bankers' Assoc.) (``fixed 18-month period would 
minimize the costs that would be incurred by financial services 
providers to comply with Fiduciary Rule and exemptions as currently 
written. It would also allow the Department to measure the progress 
of its regulatory review against a firm deadline. If, as the 
deadline date approaches, it appears additional time might be needed 
to complete its regulatory review, then the Department can consider 
at that time whether to propose such additional time as may be 
needed for completion.''); Comment Letter #51 (Morgan Stanley) (``A 
delay solely based on a specific contingent future event (e.g., the 
issuance of new exemptive relief) poses a host of problems for 
financial institutions. . . . By enacting a time-certain delay of at 
least eighteen months, financial institutions will be better able to 
plan for and implement any changes that are necessary to comply with 
new guidance and create or modify product and platform offerings. . 
. . A `floating timeline' as suggested by the Department also poses 
the risk of further confusing the retirement investors that the Rule 
is intended to protect.''); Comment Letter #73 (Raymond James) 
(``While there are benefits and drawbacks to any method chosen, we 
feel that the 18-month period certain delay provides a level of 
certainty which is beneficial to the Department's ongoing analysis 
of the Rule and the retirement marketplace. Along with the 
Department's continued analysis and potential rulemaking, please 
consider that an 18-month delay may be insufficient to not only 
complete the Department's work, but also the subsequent 
implementation efforts firms will need to undertake. As a means to 
maintain assurance in the marketplace and provide adequate time to 
accomplish all relevant objectives, please consider during your 
analysis whether it may be prudent to issue an additional delay 
further in advance of the July 1, 2019 date.''); Comment Letter #82 
(Standard Insurance Company, Standard Retirement Services) (``The 
Department should not adopt a tiered delay approach. The other 
methods proposed in the request for comments would only add further 
confusion. A fixed time period will be in the best interests of 
retirement investors because it will allow financial service 
companies to be able to continue to provide advice, education and 
services to retirement plan investors without uncertainty. Once any 
changes to the Regulations and Exemptions are proposed and 
finalized, the Department will be in a better position to evaluate 
what, if any, additional time is needed to implement the changes. A 
fixed time period for the Extensions will provide the industry and 
retirement investors alike a more definite environment in which to 
conduct business.''); Comment Letter #110 (Association for Advanced 
Life Underwriting) (``Given the `lead' time required for compliance, 
only the date certain approach provides necessary stability for 
retirement investors and their financial professionals by removing 
unnecessary and harmful regulatory uncertainty. The contingent event 
approach and the tiered approach both introduce too much 
uncertainty. Not only would the compliance deadline be vague and 
undefined, based on when some future event may happen (and 
accurately predicting when a Federal Agency may complete an action 
is a notoriously difficult thing to achieve), but uncertainty would 
also result from which contingent act is selected as the basis for 
the end of the Transition Period.''); Comment Letter #116 (Financial 
Services Roundtable) (``the Department should not adopt a tiered 
transition period . . .'').
    \22\ See, e.g., Comment Letter #75 (Groom Law Group--
Recordkeeping Clients) (``The Groom Group supports a fixed delay as 
opposed to a tiered delay structure because the Department has 
already evaluated the cost-benefit analysis of the Proposed 
Extension and because the Department could always propose an 
additional delay closer to July 1, 2019 if it determines that 
additional time is needed. Right now, it is most important that the 
Department finalize the Proposed Extension promptly. Evaluating 
extensions of different lengths or with variable end points will 
only prolong the amount of time it takes for the Department to 
finalize the Proposed Extension.''); Comment Letter #7 (Tucker 
Advisors) (``Should the Department determine that additional time is 
necessary to complete its review or should the Department ultimately 
propose changes, the Department can, at that time, propose an 
additional extension to provide plan service providers sufficient 
time to build out the systems necessary to comply with such 
changes.''); Comment Letter #27 (State Farm Mutual Automobile 
Insurance Company) (``State Farm suggests that the Department 
maintain a position of flexibility to the extent additional time is 
needed to ensure the implementation of an effective, workable and 
efficient rule.''); Comment Letter #57 (Pacific Life Insurance 
Company) (``if the Department retains flexibility in this delay, 
potentially revisiting when the revised final rule is released and 
changes are actually known, then Pacific Life does not feel the 
tiered-approach is a necessary method of delay.''); Comment Letter # 
#69 (Teachers Insurance and Annuity Association of America-TIAA) 
(``While an extension tied to completion of the Department's review 
may offer some additional benefit, we believe it is more urgent that 
Proposed Extension be finalized.''); Comment Letter #79 (Investment 
Company Institute) (``The Department should clarify that it will 
provide a period of at least one year following the finalization of 
any modifications, and more time, depending on the nature of 
modifications made and the resultant lead time required to meet any 
attendant compliance requirements.'').
    \23\ Comment Letter #115 (Bank of New York Mellon & Pershing, 
LLC) (``we are supportive of an 18-month extension and delay to 
allow the Department to complete its review and consider 
modifications to the Rule and PTEs because it provides certainty 
that the marketplace needs to minimize disruptions for retirement 
investors. Whether the Department ultimately pursues a tiered 
approach or a fixed duration approach with respect to the proposed 
extension and delay period, once any modifications to the Rule and 
PTEs are finalized, the Department will need to allow adequate time 
for firms to comply with such modified Rule and PTEs. We expect any 
changes proposed to the Rule and PTEs, or any newly proposed PTEs, 
will be made available to the public for notice and comment with the 
opportunity to review. Because we don't yet know the scope of these 
proposed changes or when such changes would become applicable, 
however, the need for additional potential transition period 
extensions and applicability date delays with respect to the PTEs is 
unavoidable.''); Comment Letter #112 (Northwestern Mutual Life 
Insurance Company) (``Northwestern Mutual supports a minimum delay 
of eighteen months as proposed by the Department and a further delay 
if the Department concludes that changes should be made to the 
Fiduciary Duty Rule or the Exemptions. . . . If, for example, the 
Department determines that significant changes should be made to the 
BIC, and those changes are made final in early 2019, then at least 
an additional transition year should be provided from that date to 
allow firms enough time to make the necessary changes to processes 
and systems and to be able to communicate in an orderly manner with 
their clients.''); Comment Letter #114 (BBVA Compass) (``In our 
view, however, the proposed 18-month extension provides the minimum 
period needed to allow the Department and other interested parties 
to review the Rule and the accompanying Exemptions, make appropriate 
determinations regarding what changes to the Rule are warranted and 
afford financial institutions reasonable time to develop and 
implement processes and systems changes necessary to conduct 
activity in a compliant manner.'').
    \24\ See, e.g., Comment Letter # 68 (AARP) (although generally 
opposed to any delay, as between a fixed 18-month delay and a 
contingent or tiered delay, the commenter stated it ``is concerned 
that tiered compliance dates will exacerbate investor confusion and 
will make it more difficult for Americans saving for retirement to 
understand. A single compliance date would be preferred.'').
---------------------------------------------------------------------------

    By contrast, many commenters believe a contingent or tiered 
approach is the better way forward.\25\ Of paramount importance to most 
of these commenters is that they have sufficient time to ready 
themselves for compliance with any changes to the requirements of the 
Fiduciary Rule and PTEs, which they believe should be substantially 
different than the current Fiduciary Rule and PTEs. These commenters 
assert that it is improbable that the Department will complete the 
directed reexamination within the proposed 18-month period, let alone 
propose and finalize amendments to the Fiduciary Rule and PTEs and 
provide adequate time to come into compliance with any such revisions--
all within that same 18-month period.\26\ They, therefore, identify the 
contingent and tiered varieties as the better approaches because, in 
their estimation, these approaches would ensure adequate time for 
compliance with the Fiduciary Rule and PTEs, as revised, and thereby 
more effectively avoid a scenario of consecutive or serial piecemeal 
delays in the future.\27\ These commenters generally favored a range of 
12 to 24 months following the Department's finalization of changes to 
the Fiduciary Rule and PTEs or following the publication of a decision 
that no changes are on the horizon.
---------------------------------------------------------------------------

    \25\ See, e.g., Comment Letter #29 (American Retirement 
Association) (Recommends a tiered approach in which the 
applicability date is delayed until ``the later of January 1, 2019, 
or a date that is at least 18-months from the date a revised 
exemption or rule is promulgated.'').
    \26\ See, e.g., Comment Letter #127 (Cetera Financial Group) (a 
delay to July 1, 2019, or any other fixed date does not take into 
account the possibility that the review itself takes more than 18 
months, the additional time that it will take financial advisers to 
digest any amendments to the rule and incorporate changes to their 
own systems and processes after a final rule is published, and the 
likelihood of confusion on the part of investors as to what 
standards apply to advice they receive in connection with retirement 
investments prior to publication of any amendments to the Fiduciary 
Rule.).
    \27\ See, e.g., Comment Letter #65 (Securities Industry and 
Financial Markets Association) (``We believe that a tiered approach 
extending the delay to the later of the 18-month period the 
Department proposed and a period ending 24 months after the 
completion of the review and publication of final rules will best 
avoid the confusion, uncertainty and cost associated with continued 
piecemeal delays.''); Comment Letter #97 (Insured Retirement 
Institute) (``the tiered approach . . . would provide the greatest 
level of certainty for our members and the customers they serve. 
This structure would avoid the need for the Department to propose 
additional delays in the future. . .'').
---------------------------------------------------------------------------

    As between the proposed 18-month fixed delay and the contingent and 
tiered alternatives, the Department continues to believe that using a 
date-certain approach, rather than one of the other alternatives, is 
the best way to respond to and minimize concerns about uncertainty with 
respect to the eventual application and scope of the Fiduciary Rule and 
PTEs. Although the contingent and tiered approaches have the built-in 
advantage of an automatic extension, if needed, it is difficult to 
choose the appropriate triggering event before the Department completes 
its reexamination of the Fiduciary Rule and PTEs. Interjecting 
unnecessary uncertainty regarding the future applicability and scope of 
the Fiduciary Rule and PTEs is harmful to all stakeholders. In 
addition, the Department believes that the additional 18 months is 
sufficient to complete review of the new information in the record and 
to implement changes to the Fiduciary Rule and/or PTEs, if any, 
including opportunity for notice and comment and coordination with 
other regulatory agencies.
    The proposal also solicited comments on whether to condition any 
extension of the Transition Period on the behavior of the entity 
seeking relief under the Transition Period. For example, the Department 
specifically asked for comment on whether to condition the delay on a 
Financial Institution's showing that it has, or a promise that it will, 
take steps to harness recent innovations in investment products and 
services, such as ``clean shares.'' All of the comments in response to 
this question opposed this idea. Some commenters expressed their 
concern that this approach would add confusion for Financial 
Institutions, who would be forced to change their products and 
services, and for retirement consumers, who would be forced to react to 
such changes.\28\ Other commenters believed that this approach would 
create an unlevel playing field by providing relief to select business 
models and investments rather than providing more neutral relief to 
many different business models and investments.\29\ Other

[[Page 56553]]

commenters are concerned that this approach would create uncertainty 
and confusion as to whether a particular firm is being held to a 
different legal standard than its peers, which would be detrimental to 
clients, investors, and other stakeholders.\30\ One commenter indicated 
that it is strongly opposed to this approach because essentially it 
would be a new or different exemption, and not really an extension of 
the current Transition Period.\31\ The Department is persuaded that 
conditions of this type generally seem more relevant in the context of 
considering the development of additional and more streamlined 
exemption approaches that take into account recent marketplace 
innovations, and less appropriate and germane in the context of a 
decision whether to extend the Transition Period.
---------------------------------------------------------------------------

    \28\ See, e.g., Comment Letter #76 (Groom Law Group on Behalf of 
Annuity and Insurance Company Clients) (``Not only would imposing 
additional conditions reduce the benefit of the Proposed Extension, 
but additional conditions would add confusion for Financial 
Institutions, who would be forced to change their products and 
services, and for retirement consumers, who would be forced to react 
to such changes.''); Comment Letter #82 (Standard Life Insurance 
Company, Standard Retirement Services) (``To condition a further 
delay on certain steps toward `innovations' would only serve to 
confuse investors and the retirement industry.'').
    \29\ See, e.g., Comment Letter #62 (Lincoln Financial Group) 
(``We continue to urge the Department to . . . hold fee-based 
compensation and commissions to the same standard and process, so 
that guaranteed lifetime income products can be made available to 
consumers on a level playing field with other products.''); Comment 
Letter #65 (Securities Industry and Financial Markets Association) 
(``Further, we do not believe the Department should condition delays 
upon adoption of any specific `innovations' by entities that rely on 
the Transition Period. [E]xemptions should be generally applicable 
to many different business models, and not simply the model that the 
Department prefers.''); Comment Letter #48 (American Council of Life 
Insurers) (``we strongly oppose a delay approach based on subjective 
criteria. . . . A subjective delay approach, based on undefined and 
ambiguous factors, such as whether firm has taken `concrete steps' 
to `harness' market developments, would require the Department to 
subjectively and inappropriately pick and choose among providers and 
products based on vague factors. We question the constitutionality 
and legality of such an approach.''); Comment Letter #53 (PSF 
Investments/Primerica) (``Tying a delay to firms' adoption of 
certain `innovations' or business models would only add further to 
the perception or actuality that the government is favoring a 
product, an industry, a business model or a compensation 
structure.''); Comment Letter #109 (Fidelity Investments) 
(``Finally, we agree with the Department that applicability of the 
delay should not be conditioned on an advice provider engaging in 
certain behavior, such as making a promise to harness recent 
innovations in investment products and services. Such conditions 
would unduly pressure advice providers to engage in whatever 
behavior might be designated. Slanting advice in this manner, 
however favorably the Department or any other person might view a 
particular product or service or behavior, will necessarily 
constrain choice and options to the detriment of retirement savers. 
Making an advice provider's use of a specific product or service the 
price of avoiding the needless costs and investor confusion 
associated with the January 1 applicability date is not appropriate 
or warranted.'').
    \30\ See, e.g., Comment Letter #64 (BlackRock) (``The 
uncertainty and confusion as to whether a particular firm is being 
held to a different legal standard than its peers would be 
detrimental to clients, investors and other stakeholders.''). See 
also Comment Letter #103 (Committee of Annuity Insurers) (stated 
that ``it could stifle innovation in product and advice models,'' 
that ``the Department should not substitute its own investment 
preferences for the preferences and insights of advisers,'' and that 
``the conditional relief contemplated in the Department's proposal 
would be `too imprecise' for any firm seeking to avail themselves of 
the potential relief.'').
    \31\ Comment Letter #86 (Spark Institute) (``The circumstances 
necessitating the existing Transition Period have not changed in any 
way since its announcement in the spring. The Department has not 
completed its examination and it has not announced whether, and how, 
the Investment Advice Regulation will be amended. Until the 
Department has completed both of those tasks, it should not alter 
its existing Transition Period rules in any way, other than to 
extend its expiration. Any contrary decision would result in 
significant market disruptions, substantial confusion, and would be 
difficult to monitor and administer.'').
---------------------------------------------------------------------------

Miscellaneous

    The Department rejects certain comments beyond the scope of this 
rulemaking, whether such comments were received pursuant to the August 
31 Notice or the RFI. For instance, one commenter urged the Department 
to amend the Principal Transactions Exemption for the Transition Period 
to remove the limits on products that can be traded on a principal 
basis, and allow those products that have historically been traded in 
the principal market to continue to be bought and sold by IRAs and 
plans, including, but not limited to, foreign currency, municipal 
bonds, and equity and debt IPOs. A different commenter requested that 
the Department revise the ``grandfather'' exemption, in section VII of 
the BIC Exemption, so that grandfathering treatment would apply to 
recommendations made prior to the expiration of the extended Transition 
Period (July 1, 2019).\32\ Inasmuch as amendments such as these were 
not suggested in the August 31 Notice, the public did not have notice 
or a full opportunity to comment on these issues and they are beyond 
the scope of this final rule. The Department, however, is open to 
further consideration of the merits of these requests, and the 
submission of additional relevant information, as part of its ongoing 
reexamination of the Fiduciary Rule and related exemptions.
---------------------------------------------------------------------------

    \32\ Due to the delay of certain exemption conditions as part of 
the April Delay Rule, the standards applicable to grandfathered 
assets and non-grandfathered assets during the Transition Period are 
similar. For this reason, the Department sees no compelling reason 
to extend grandfathering treatment through the Transition Period. 
The primary purpose of the grandfathering exemption was to preserve 
compensation for services rendered prior to the Fiduciary Rule and 
to permit orderly transition from past arrangements, not to exempt 
future advice and investments from important protections scheduled 
to become applicable after the Transition Period. Nevertheless, 
commenters are encouraged to supplement their comments on this point 
during the reexamination period.
---------------------------------------------------------------------------

D. Findings by Secretary of Labor

    ERISA section 408(a) specifically authorizes the Secretary of Labor 
to grant administrative exemptions from ERISA's prohibited transaction 
provisions.\33\ Reorganization Plan No. 4 of 1978 generally transferred 
the authority of the Secretary of the Treasury to grant administrative 
exemptions under Code section 4975(c)(2) to the Secretary of Labor.\34\ 
Regulations at 29 CFR 2570.30 to 2570.52 describe the procedures for 
applying for an administrative exemption. Under these authorities, the 
Secretary of Labor has discretionary authority to grant new or modify 
existing administrative exemptions under ERISA and the Code on an 
individual or class basis, if the Secretary finds that the exemptions 
are (1) administratively feasible, (2) in the interests of plans and 
their participants and beneficiaries and IRA owners, and (3) protective 
of the rights of the participants and beneficiaries of such plans and 
IRA owners. The Department has made such findings with respect to the 
18-month extension of the Transition Period under the BIC and Principal 
Transactions Exemptions and the 18-month delay in the applicability of 
certain amendments to PTE 84-24. It is largely the continued imposition 
of the Impartial Conduct Standards that enables the Department to grant 
the delay under these standards, but other factors are also important 
to these findings. For instance, it is in the interests of plans and 
their participants and beneficiaries and IRA owners to avoid the cost 
and confusion of a potentially disorderly transition to PTE conditions 
that are under reexamination pursuant to a Presidential Executive Order 
and that may change in the near future. In addition, to be protective 
of the rights of participants, beneficiaries, and IRA owners, the 
Department chose a time certain delay of 18 months, rather than a more 
open-ended contingent or tiered alternative. These factors are 
discussed further in the RIA section of this document.
---------------------------------------------------------------------------

    \33\ 29 U.S.C. 1108(a).
    \34\ 5 U.S.C. app at 214 (2000).
---------------------------------------------------------------------------

E. Extension of Temporary Enforcement Relief--FAB 2017-02

    On May 22, 2017, the Department issued a temporary enforcement 
policy covering the transition period between June 9, 2017, and January 
1, 2018, during which the Department will not pursue claims against 
investment advice fiduciaries who are working diligently and in good 
faith to comply with their fiduciary duties and to meet the conditions 
of the PTEs, or otherwise treat those investment advice fiduciaries as 
being in violation of their fiduciary duties and not compliant with the 
PTEs. See Field Assistance Bulletin 2017-02 (May 22, 2017) (FAB 2017-
02). Comments were solicited on whether to extend this policy for the 
same period covered by the proposed extension of the Transition Period.
    Commenters supporting an extension of the Transition Period 
overwhelmingly indicated their support for also extending the temporary 
enforcement policy in FAB 2017-02, to align the two periods.\35\ These

[[Page 56554]]

commenters believe such an alignment will significantly help to avoid 
market disruptions during the Transition Period. These commenters 
strongly oppose adding any new conditions to the enforcement policy 
during this period. They also request clarification that the relief 
under FAB 2017-02 is conditioned on diligent and good faith efforts to 
comply with the Fiduciary Rule and Impartial Conduct Standards, and 
does not also require diligent and good faith efforts towards 
implementing the delayed provisions of the PTEs.\36\
---------------------------------------------------------------------------

    \35\ See, e.g., Comment Letter #29 (American Retirement 
Association) (``ARA would strongly recommend continuing the 
temporary enforcement policy announced in Field Assistance Bulletin 
2017-02. This would be consistent with the Department's announced 
intention to assist (rather than citing violations and imposing 
penalties on) plans, plan fiduciaries, financial institutions and 
others who are working diligently and in good faith to understand 
and come into compliance with the fiduciary duty rule and 
exemptions. Further, if a Financial Institution acts in bad faith, 
the Department could pursue an enforcement action.''); Comment 
Letter #30 (Neuberger Berman Group) (``We unconditionally support 
the common sense answer that the Temporary Enforcement Policy be 
extended to line up with the final applicability dates in respect of 
those originally scheduled for January 1, 2018.''); Comment Letter 
#48 (American Council of Life Insurers) (``An extension of FAB 2017-
02's temporary enforcement policy is consistent with the 
Department's stated `good faith' compliance approach to 
implementation. . . .''); Comment Letter # 86 (Spark Institute) 
(``SPARK strongly supports an extension of the Department's 
temporary enforcement policy because of all of the uncertainty 
surrounding the future of the Investment Advice Regulation. The 
Department's proposal to extend the Transition Period notes that the 
Department is considering an extension of the Transition Period 
because it is still not known whether, and to what extent, there 
will be changes to the Department's interpretation of ``investment 
advice'' and the new and revised PTEs. Given this rationale, it 
simply would not make any sense for the Department to start 
enforcing portions of a regulation that is actively being 
reconsidered.''); Comment Letter #92 (E*TRADE) (``any delay should 
include a corresponding extension of Field Assistance Bulletin 2017-
02. As firms are already subject to the Impartial Conduct Standards 
. . . we believe a corresponding extension of FAB 2017-02 will 
benefit financial service providers without harming retirement 
investors, while retaining enforcement powers for firms not 
implementing requirements in good faith.''); Comment Letter #128 
(U.S. Chamber of Commerce) (``The Chamber believes the Department 
should extend the applicability of Field Assistance Bulletin 2017-02 
from January 1, 2018, until the end of the Transition Period.'').
    \36\ See, e.g., Comment Letter #28 (Empower Retirement) (``The 
relief offered under FAB 2017-02 was conditioned on fiduciaries 
working diligently and in good faith to comply with the fiduciary 
rule and exemptions. The DOL should make clear that this does not 
require continuing implementation efforts that would have been 
required for the January 1, 2018 applicability date, but is based on 
continued adherence to the Impartial Conduct Standards.''); Comment 
Letter #41 (Great-West Financial) (``To avoid disruption in the 
market, the DOL should refrain from adding new conditions but should 
simultaneously announce that the non-enforcement policy announced in 
FAB 2017-02 will be extended during the eighteen-month extension. 
The relief offered under FAB 2017-02 was conditioned on fiduciaries 
working diligently and in good faith to comply with the fiduciary 
duty rule and exemptions. The DOL should make clear that this does 
not require continuing implementation efforts that would have been 
required for the January 1, 2018 applicability date, but is based on 
continued adherence to the Impartial Conduct Standards.''). See also 
Comment Letter #82 (Standard Insurance Company and Standard 
Retirement Services, Inc.) (``we ask that The Department also extend 
the temporary enforcement policy providing relief to investment 
advice fiduciaries who are working in good faith to comply with the 
Regulations. Adding subjective requirements like `taking steps 
toward innovations' would only add further uncertainty and confusion 
to the current situation.'').
---------------------------------------------------------------------------

    Although the Department has a statutory responsibility and broad 
authority to investigate or audit employee benefit plans and plan 
fiduciaries to ensure compliance with the law, compliance assistance 
for plan fiduciaries and other service providers is also a high 
priority for the Department. The Department has repeatedly said that 
its general approach to implementation will be marked by an emphasis on 
assisting (rather than citing violations and imposing penalties on) 
plans, plan fiduciaries, financial institutions, and others who are 
working diligently and in good faith to understand and come into 
compliance with the Fiduciary Rule and PTEs. Consistent with that 
approach, the Department has determined that extended temporary 
enforcement relief is appropriate and in the interest of plans, plan 
fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners. 
Accordingly, during the phased implementation period from June 7, 2016, 
to July 1, 2019, the Department will not pursue claims against 
fiduciaries who are working diligently and in good faith to comply with 
the Fiduciary Rule and applicable provisions of the PTEs, or treat 
those fiduciaries as being in violation of the Fiduciary Rule and 
PTEs.\37\ At the same time, however, the Department emphasizes, as it 
has in the past, that firms and advisers should work ``diligently and 
in good faith to comply'' \38\ with their fiduciary obligations during 
the Transition Period. The ``basic fiduciary norms and standards of 
fair dealing'' \39\ are still required of fiduciaries during the 
Transition Period.
---------------------------------------------------------------------------

    \37\ On March 28, 2017, the Treasury Department and the IRS 
issued IRS Announcement 2017-4 stating that the IRS will not apply 
Sec.  4975 (which provides excise taxes relating to prohibited 
transactions) and related reporting obligations with respect to any 
transaction or agreement to which the Labor Department's temporary 
enforcement policy described in FAB 2017-01, or other subsequent 
related enforcement guidance, would apply. The Treasury Department 
and the IRS have confirmed that, for purposes of applying IRS 
Announcement 2017-4, the discussion in this document constitutes 
``other subsequent related enforcement guidance.''
    \38\ See Conflict of Interest FAQs (Transition Period), May 
2017, p.11. (https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period-1.pdf); see also FAB 2017-02 (``The Department has repeatedly said 
that its general approach to implementation will be marked by an 
emphasis on assisting (rather than citing violations and imposing 
penalties on) plans, plan fiduciaries, financial institutions, and 
others who are working diligently and in good faith to understand 
and come into compliance with the fiduciary duty rule and 
exemptions.'').
    \39\ Conflict of Interest FAQs (Transition Period), May 2017, 
p.3.
---------------------------------------------------------------------------

    Accordingly, as the Department reviews the compliance efforts of 
firms and advisers during the Transition Period, it will focus on the 
affirmative steps that firms have taken to comply with the Impartial 
Conduct Standards and to reduce the scope and severity of conflicts of 
interest that could lead to violations of those standards. The 
Department recognizes that the development of effective, long-term 
compliance solutions may take time, but it remains critically important 
that firms take action to ensure that investment recommendations are 
governed by the best interests of retirement investors, rather than the 
potentially competing financial incentives of the firm or adviser.
    As the Department explained in previous guidance, although firms 
``retain flexibility to choose precisely how to safeguard compliance 
with the Impartial Conduct Standards'' \40\ during the Transition 
Period, they certainly may look to the specific provisions of the Best 
Interest Contract Exemption and Principal Transactions Exemption for 
guidance on ways to comply with the Impartial Conduct Standards. Thus, 
for example, the Department noted: ``Section IV of the BIC Exemption 
provides a detailed statement of how firms that limit adviser's 
investment recommendations to proprietary products or to investments 
that generate third party payments can comply with the best interest 
standard.'' ``If the firm and the adviser meet the terms of Section IV. 
. . they are `deemed' to satisfy the best interest standard.'' \41\ 
Thus, while firms are not required to rely on Section IV during the 
Transition Period, such reliance would certainly constitute good faith 
compliance.
---------------------------------------------------------------------------

    \40\ Id. at p.6.
    \41\ Id. at p.6 n.4.
---------------------------------------------------------------------------

    The Department also remains ``broadly available to discuss 
compliance approaches and related issues with interested parties, and 
would invite interested parties to contact the Department'' \42\ about 
the compliance approaches they have adopted or plan to adopt. This 
document accordingly supplements FAB 2017-02.
---------------------------------------------------------------------------

    \42\ Id. at p.6.
---------------------------------------------------------------------------

F. Regulatory Impact Analysis

    The Department expects that the extension of the Transition Period 
under the BIC and Principal Transactions Exemptions and the delay of 
the amendments to PTE 84-24 (other than the Impartial Conduct 
Standards) will

[[Page 56555]]

produce benefits that justify associated costs. These actions will 
avert the possibility of a costly and disorderly transition from the 
Impartial Conduct Standards to full compliance with the exemptions' 
conditions that ultimately could be modified or repealed, and thereby 
reduce some compliance costs. Similarly, it could avert the possibility 
of unnecessary costs to consumers as a result of an unnecessarily 
confusing or disruptive transition. As stated above, the Department 
currently is engaged in the process of reviewing the Fiduciary Rule and 
PTEs as directed in the Presidential Memorandum and reviewing comments 
received in response to the RFI. The delay will allow the Department to 
reexamine the Fiduciary Rule and PTEs and to update its economic 
analysis. The Department's objective is to complete its review pursuant 
to the President's Memorandum, analyze comments received in response to 
the RFI, determine whether future changes to the Fiduciary Rule and 
PTEs are necessary, and propose and finalize any changes to the 
Fiduciary Rule or PTEs sufficiently before July 1, 2019, to provide 
firms with sufficient time to design and implement an orderly 
transition to any new requirements.
    If the Department revises or repeals some aspects of the Fiduciary 
Rule and PTEs in the future, the delay will allow affected firms to 
avoid incurring significant implementation costs now which later might 
turn out to be unnecessary. Furthermore, the delay will provide firms 
with more time to develop new products and practices that can provide 
long-term solutions for mitigating conflicts of interests. For example, 
a commenter cited numerous logistical obstacles that must be surmounted 
before using clean share classes in the market.\43\ The delay provides 
firms with additional time to address these issues and successfully 
launch products that benefit investors. The delay also will provide the 
Department with time to consult further with other regulators including 
the NAIC and the SEC. Such consultations may advance the development of 
a regulatory framework that could promote market efficiency and 
transparency, while reducing the burden to the financial sector and 
associated consumer costs.
---------------------------------------------------------------------------

    \43\ Comment Letters #229 (Investment Company Institute) (dated 
July 21, 2017), #442 (Morningstar, Inc.) (dated August 3, 2017), and 
#594 (Fi360, Inc.) (dated August 7, 2017) (responding to RFI).
---------------------------------------------------------------------------

1. Executive Order 12866 Statement
    This final rule is an economically significant action within the 
meaning of section 3(f)(1) of Executive Order 12866, because it would 
likely have an effect on the economy of $100 million in at least one 
year. Accordingly, the Department has considered the costs and benefits 
of the final rule, which has been reviewed by the Office of Management 
and Budget (OMB).
a. Investor Gains
    Beginning on June 9, 2017, Financial Institutions and Advisers 
generally were required to (1) make recommendations that are in their 
client's best interest (i.e., recommendations that are prudent and 
loyal), (2) avoid misleading statements, and (3) charge no more than 
reasonable compensation for their services. If they fully adhere to 
these requirements, the Department expects that affected investors will 
generally receive impartial advice and accordingly a significant 
portion of the gains it estimated in the 2016 RIA.\44\ However, because 
the PTE conditions are intended to support and provide accountability 
mechanisms for such adherence and remedies for lapses thereof (e.g., 
conditions requiring advisers to provide a written acknowledgement of 
their fiduciary status and adherence to the Impartial Conduct Standards 
and enter into enforceable contracts with IRA investors), the 
Department acknowledges that the delay may result in the loss or 
deferral of some of the estimated investor gains. On the other hand, 
potential revisions to PTE conditions may reduce costs and thereby 
yield additional investor gains.
---------------------------------------------------------------------------

    \44\ The Department's baseline for this RIA includes all current 
rules and regulations governing investment advice including those 
that would become applicable on January 1, 2018, absent this delay. 
The RIA did not quantify incremental gains by each particular aspect 
of the rule and PTEs.
---------------------------------------------------------------------------

    The Department received many comments on the question of whether 
the delay would reduce investor gains. One group of commenters argued 
that the delay would not cause any harms to investors, \45\ because the 
Impartial Conduct Standards already are in place and provide sufficient 
protection for investors.\46\ They asserted that investor gains would 
be largely preserved during the extended transition period, because the 
investor gains primarily are derived from the expanded fiduciary status 
and the Impartial Conduct Standards, which already have taken effect, 
and this rule simply delays the implementation of some other exemption 
conditions.\47\ Furthermore, these commenters urged the Department to 
weigh the harms to investors from not delaying the January 1, 2018, 
applicability date. According to them, there is no evidence that 
investors would be harmed by this delay, and because the Fiduciary Rule 
already has negatively affected many investors, they would suffer more 
harm if the remaining conditions of the PTEs were not delayed.\48\
---------------------------------------------------------------------------

    \45\ See, e.g., Comment Letter #11 (Alternative and Direct 
Securities Investment Association); Comment Letter #38 (Federated 
Investors, Inc.); Comment Letter #65 (Securities Industry and 
Financial Markets Association); Comment Letter #79 (Investment 
Company Institute).
    \46\ See, e.g., Comment Letter #11 (Alternative and Direct 
Securities Investment Association).
    \47\ See, e.g., Comment Letter #229 (Investment Company 
Institute) to the RFI; Comment Letter #79 (Investment Company 
Institute).
    \48\ See, e.g., Comment Letter #65 (Securities Industry and 
Financial Markets Association).
---------------------------------------------------------------------------

    Another group of commenters argued that the delay would cause 
significant losses to investors,\49\ because they found that many 
financial services firms have preserved business models that the 
commenters view as conflict-laden and not made meaningful changes to 
root out conflicts of interest.\50\ They also asserted that many 
financial services firms could flout the requirements of the Impartial 
Conduct Standards due to the lack of a strong enforcement mechanism in 
the retail IRA market and the Department's non-enforcement policy 
during the extended transition period.\51\ To support their claims, 
these commenters cited media reports that financial services firms are 
not implementing further changes because they anticipate that the 
Department will issue a lengthy delay of the transition period \52\ and 
some pockets of industry suspended their implementation.\53\ One 
commenter referenced a market survey of broker-dealers in which many 
respondents reported that they have not yet made efforts to adhere to 
the Fiduciary Rule and the Impartial Conduct Standards.\54\ For 
example, about 64 percent of surveyed broker-dealers responded that 
they have not

[[Page 56556]]

made any changes to the product mix; another 64 percent of broker-
dealers responded that they have not made changes to their internal 
compensation arrangements to accommodate the Fiduciary Rule.\55\ (It is 
unclear, however, whether the survey respondents accurately represent 
the overall industry.) Another commenter urged the Department to 
consider that the delay would unfairly harm firms that expended 
resources for timely compliance with the Fiduciary Rule and create an 
unlevel playing field with non-compliant firms.\56\ One commenter 
estimated that an 18-month delay would cost investors about $10.9 
billion over 30 years assuming a 50 percent compliance rate.\57\ Based 
on this commenter's estimated investor losses, several commenters 
claimed that the Department cannot justify the delay because investor 
losses outweigh the estimated compliance cost savings.\58\
---------------------------------------------------------------------------

    \49\ See, e.g., Comment Letter #44 (Economic Policy Institute); 
Comment Letter #68 (AARP); Comment Letter #80 (Consumer Federation 
of America); Comment Letter #84 (Better Markets); Comment Letter #91 
(Public Investors Arbitration Bar Association); Comment Letter #108 
(American Association for Justice); Comment Letter #126 (Institute 
for Policy Integrity at New York University School of Law).
    \50\ See, e.g., Comment Letter #80 (Consumer Federation of 
America).
    \51\ See, e.g., Comment Letter #80 (Consumer Federation of 
America).
    \52\ Greg Iacurici, Investment News, August 16, 2017, 
``Anticipating delay to DOL fiduciary rule, broker-dealers and RIAs 
change course.''
    \53\ Diana Britton, Wealth Management.com, June 19, 2017, ``DOL 
in the Real World.''
    \54\ Comment Letter #141 (Consumer Federation of America).
    \55\ John Crabb, International Financial Law Review, October 
2017, ``The Fiduciary Rule Poll.''
    \56\ Comment Letter #84 (Better Markets).
    \57\ See Comment Letter #44 (Economic Policy Institute). 
According to this comment, the investor losses over 30 years would 
range from $5.5 billion (75 percent compliance rate) to $16.3 
billion (25 percent compliance rate).
    \58\ See, e.g., Comment Letter #80 (Consumer Federation of 
America); Comment Letter #91 (Public Investors Arbitration Bar 
Association); Comment Letter #120 (AFL-CIO); Comment Letter #126 
(Institute for Policy Integrity at New York University School of 
Law).
---------------------------------------------------------------------------

    The Department carefully reviewed and weighed these comments and 
the referenced reports on potential investor losses caused by this 
delay. Steps some firms already have taken toward compliance, if not 
reversed, may limit investor losses. By some accounts, \59\ compliance 
efforts may be most advanced among the larger firms that account for 
the majority of the market, so the number of retirement investors 
potentially benefiting from compliance efforts might be large. Firms 
may be especially motivated to comply in connection with advice on 
rollovers from ERISA-covered plans to IRAs, where they may face 
liability for any fiduciary breaches under ERISA itself. Nonetheless, 
gaps in compliance may subject investors to some potentially avoidable 
losses, of uncertain incidence and magnitude.
---------------------------------------------------------------------------

    \59\ John Crabb, International Financial Law Review, October 
2017, ``The Fiduciary Rule Poll.'' According to this report, some 
firms already adopted fiduciary standards for business reasons; 
therefore, they would continue to comply with the rule using the 
adopted changes during this transition period.
---------------------------------------------------------------------------

    These potential losses, however, must be weighed against the costs 
that firms and investors would incur if the January 1, 2018 
applicability date were not delayed. Absent delay, firms would be 
forced to rush to comply with provisions that the Department may soon 
revise or rescind. Notwithstanding whatever steps firms already have 
taken toward compliance, it is likely that for many, such a rush to 
comply would be costly, disruptive, and/or infeasible. Smaller firms, 
which may be least prepared to comply fully, might be affected most. 
The disruption also could adversely affect many investors. Some of the 
costs incurred could turn out to be wasted if costly provisions are 
later revised or rescinded--and subsequent implementation of revised 
provisions might sow confusion and yield additional disruption. This 
delay will avert such disruption along with the potentially wasted cost 
of complying with provisions that the Department later revises or 
rescinds. In addition, the Department notes that some commenters' 
observations that investor losses from this delay may exceed associated 
compliance cost savings do not reflect the totality of economic 
considerations properly at hand. While some investor losses will 
reflect decreases in overall social welfare, others will reflect 
transfers from investors to the financial industry, which, while 
undesirable, are not social costs per se. Compliance costs in turn 
represent only some of the societal costs that may be averted by this 
delay. Others include those attributable to the potential disruption 
and confusion that could adversely affect both firms and investors.
    The Department acknowledges uncertainty surrounding potential 
investor losses from this delay. On balance, however, the Department 
concludes that the delay is justified, insofar as avoiding the market 
disruption that would occur if regulated parties incur costs to comply 
quickly with conditions or requirements the Department subsequently 
revises or repeals and the resultant significant consumer confusion 
justifies any attendant investor losses.
b. Cost Savings
    Some firms that are fiduciaries under the Fiduciary Rule may have 
committed resources to implementing procedures to support compliance 
with their fiduciary obligations. This may include changing their 
compensation structures and monitoring the practices and procedures of 
their advisers to ensure that conflicts of interest do not cause 
violations of the Fiduciary Rule and Impartial Conduct Standards of the 
PTEs, and maintaining sufficient records to corroborate that they are 
complying with the Fiduciary Rule and PTEs. These firms have 
considerable flexibility to choose precisely how they will achieve 
compliance with the PTEs during the extended transition period. 
According to some commenters, the majority of broker-dealers have not 
yet made any changes to their internal compensation arrangements and 
have not fully developed monitoring systems.\60\ The Department does 
not have sufficient data to estimate such costs; therefore, they are 
not quantified here.
---------------------------------------------------------------------------

    \60\ See, e.g., Comment Letter #80 (Consumer Federation of 
America); Greg Iacurici, Investment News, August 16, 2017, 
``Anticipating delay to DOL fiduciary rule, broker-dealers and RIAs 
change course.''
---------------------------------------------------------------------------

    Some commenters have asserted that the delay could result in cost 
savings for firms compared to the costs that were estimated in the 
Department's 2016 RIA to the extent that the requirements of the 
Fiduciary Rule and PTE conditions are modified in a way that would 
result in less expensive compliance costs. However, the Department 
generally believes that start-up costs not yet incurred for 
requirements previously scheduled to become applicable on January 1, 
2018, should not be included, at this time, as a cost savings 
associated with this rule because the rule would merely delay the full 
implementation of certain conditions in the PTEs until July 1, 2019, 
while the Department considers whether to propose changes and 
alternatives to the exemptions. The Department would be required to 
assume for purposes of this regulatory impact analysis that those 
start-up costs that have not been incurred generally would be delayed 
rather than avoided unless or until the Department acts to modify the 
compliance obligations of firms and advisers to make them more 
efficient. Nonetheless, even based on that assumption, there may be 
some cost savings that could be quantified as arising from the delay 
because some ongoing costs would not be incurred until July 1, 2019. 
The Department has taken two approaches to quantifying the savings 
resulting from the delay in incurring such ongoing costs: (1) 
Quantifying the costs based on a shift in the time horizon of the costs 
(i.e., comparing the present value of the costs of complying over a ten 
year period beginning on January 1, 2018, with the costs of complying, 
instead, over a ten year period beginning on July 1, 2019); and (2) 
quantifying the reduced costs during the 18-month period of delay from 
January 1, 2018, to July 1, 2019, during which time regulated parties 
would otherwise have had to comply with the full conditions of the BIC

[[Page 56557]]

Exemption and Principal Transaction Exemption but for the delay.
    The first of the two approaches reflects the time value of money 
(i.e., the idea that money available at the present time is worth more 
than the same amount of money in the future, because that money can 
earn interest). The deferral of ongoing costs by 18 months will allow 
the regulated community to use money they would have spent on ongoing 
compliance costs for other purposes during that time period. The 
Department estimates that the ten-year present value of the cost 
savings arising from this 18 month deferral of ongoing compliance 
costs, and the regulated community's resulting ability to use the money 
for other purposes, is $551.6 million using a three percent discount 
rate \61\ and $1.0 billion using a seven percent discount rate.\62\
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    \61\ Annualized over ten years to $64.7 million per year or over 
a perpetual time horizon, discounted back to 2016, to $15.6 million 
per year.
    \62\ Annualized over ten years to $143.9 million per year or 
over a perpetual time horizon, discounted back to 2016, to $61.8 
million per year.
---------------------------------------------------------------------------

    The second of the two approaches simply estimates the expenses 
foregone during the period from January 1, 2018, to July 1, 2019, as a 
result of the delay. When the Department published the Fiduciary Rule 
and accompanying PTEs, it calculated that the total ongoing compliance 
costs of the Fiduciary Rule and PTEs were $1.5 billion annually. 
Therefore, the Department estimates the ten-year present value of the 
cost savings of firms not being required to incur ongoing compliance 
costs during an 18 month delay would be approximately $2.2 billion 
using a three percent discount rate \63\ and $2.0 billion using a seven 
percent discount rate.\64\ \65\
---------------------------------------------------------------------------

    \63\ Annualized over ten years to $252.1 million per year or 
over a perpetual time horizon, discounted back to 2016, to $57.3 
million per year.
    \64\ Annualized over ten years to $291.1 million per year or 
over a perpetual time horizon, discounted back to 2016, to $109.2 
million per year.
    \65\ The Department notes that firms may be incurring some costs 
to comply with the impartial conduct standards; however, it does not 
have sufficient data to estimate these costs. The Department, as it 
continues to update its analysis of the rule, solicits comments on 
the costs of complying with the impartial conduct standards, and how 
these costs interact with the costs of all other facets of 
compliance with the conditions of the PTEs.
---------------------------------------------------------------------------

    Based on its progress thus far with the review and reexamination 
directed by the President, however, the Department believes there may 
be evidence supporting alternatives that reduce costs and increase 
benefits to all affected parties, while maintaining protections for 
retirement investors. The Department anticipates that it will have a 
clearer sense of the range of such alternatives once it completes a 
careful review of the data and evidence submitted in response to the 
RFI.
    The Department also cannot determine at this time the degree to 
which the infrastructure that affected firms have already established 
to ensure compliance with the Fiduciary Rule and PTEs exemptions would 
be sufficient to facilitate compliance with the Fiduciary Rule and PTEs 
conditions if they are modified in the future.
c. Alternatives Considered
    While the Department considered several alternatives that were 
informed by public comments, the Department's chosen alternative in 
this final rule is likely to yield the most desirable outcome, 
including avoidance of investor losses otherwise associated with costly 
market disruptions. In weighing different options, the Department took 
numerous factors into account. The Department's objective was to 
facilitate orderly marketplace innovation and avoid unnecessary 
confusion and uncertainty in the investment advice market and 
associated expenses for America's workers and retirees.
    The Department solicited comments at the proposed rule stage 
regarding whether it should adopt an extension that would end (1) a 
specified period after the occurrence of a specific event (a contingent 
approach) or (2) on the earlier or the later of (a) a time certain and 
(b) the end of a specified period after the occurrence of a specific 
event (a tiered approach). Several commenters supported a contingent or 
tiered approach,\66\ while others expressed concern that a potentially 
indefinite delay might erode compliance with the Impartial Conduct 
Standards. The Department decided not to adopt these approaches, 
because they could inject too much uncertainty into the market and 
cause investor confusion.
---------------------------------------------------------------------------

    \66\ See, e.g., Comment Letter #48 (American Council of Life 
Insurers); Comment Letter #51 (Morgan Stanley); Comment Letter #57 
(Pacific Life Insurance Company); Comment Letter #73 (Raymond James 
Financial); Comment Letter #82 (Standard Insurance Company and 
Standard Retirement Services, Inc.); Comment Letter #112 
(Northwestern Mutual Life Insurance Company); Comment Letter #121 
(HSBC North America Holdings Inc.); Comment Letter #124 (Morgan, 
Lewis & Bockius LLP).
---------------------------------------------------------------------------

    As discussed above in this preamble, some commenters urged the 
Department to require firms to comply with the original transitional 
requirements of the exemptions, not just the Impartial Conduct 
Standards.\67\ The Department declines this suggestion for now but 
agrees to give the matter further consideration during the course of 
the reexamination. The efficacy and effect of these transitional 
requirements need to be considered very carefully as the Department 
considers possible changes to the exemptions and their disclosure 
requirements. The Department is concerned that after completing its 
reexamination, it might change the disclosure requirements, the 
implementation of which would have imposed approximately $50.4 million 
of operational costs \68\ plus additional start-up costs.
---------------------------------------------------------------------------

    \67\ See, e.g. Comment Letter #80 (Consumer Federation of 
America) (``at a bare minimum, the Department must require firms and 
advisers to comply with the original transitional requirements of 
the exemptions, as set forth in Section IX of the BIC Exemption and 
Section VII of the Principal Transactions Exemption, not just the 
Impartial Conduct Standards. These include: (1) The minimal 
transition written disclosure requirements in which firms 
acknowledge their fiduciary status and that of their advisers with 
respect to their advice, state the Impartial Conduct Standards and 
provide a commitment to adhere to them, and describe the firm's 
material conflicts of interest and any limitations on product 
offering; (2) the requirement that firms designate a person 
responsible for addressing material conflicts of interest and 
monitoring advisers' adherence to the Impartial Conduct Standards; 
and (3) the requirement that firms maintain records necessary to 
prove that the conditions of the exemption have been met.'').
    \68\ Using the same methodology that was used to calculate the 
burden of the transition disclosure that was originally envisioned 
in the April 2016 final rule and exemptions, the Department 
estimates that during the transition period, 34.2 million transition 
disclosures would be produced to comply with the requirements of the 
Best Interest Contract Exemption at a cost of $47.2 million, and 2.7 
million transition disclosures would be produced to comply with the 
requirements of the Principal Transactions Exemption at a cost of 
$3.2 million. These estimates assume that all investment advice 
clients receiving advice covered by the applicable exemptions 
between January 1, 2018 and December 31, 2018 would receive the 
transition disclosures and all new investment advice clients 
receiving advice covered by the applicable exemptions between 
January 1, 2019 and June 30, 2019 would receive the transition 
disclosures.
---------------------------------------------------------------------------

    The Department also considered not extending the transition period, 
which would mean that the remaining conditions in the PTEs would become 
applicable on January 1, 2018. The Department rejected this alternative 
because it would not provide sufficient time for the Department to 
complete its ongoing review of, or propose and finalize any changes to 
the Fiduciary Rule and PTEs. Moreover, absent the extended transition 
period, Financial Institutions and Advisers would feel compelled to 
prepare for full compliance with PTE conditions that become applicable 
on January 1, 2018, despite the possibility that the Department might 
identify and adopt more efficient alternatives or other significant 
changes to the rule. This could lead to unnecessary compliance costs 
and market disruptions. As compared to a shorter delay with the

[[Page 56558]]

possibility of consecutive additional delays, if needed, the 18-month 
delay provides more certainty for affected stakeholders because it sets 
a firm date for full compliance, which allows for proper planning and 
reliance.
2. Paperwork Reduction Act
    The Paperwork Reduction Act (PRA) (44 U.S.C. 3501, et seq.) 
prohibits federal agencies from conducting or sponsoring a collection 
of information from the public without first obtaining approval from 
the Office of Management and Budget (OMB). See 44 U.S.C. 3507. 
Additionally, members of the public are not required to respond to a 
collection of information, nor be subject to a penalty for failing to 
respond, unless such collection displays a valid OMB control number. 
See 44 U.S.C. 3512.
    OMB has previously approved information collections contained in 
the Fiduciary Rule and PTEs. The Department now is extending the 
transition period for the full conditions of the PTEs associated with 
its Fiduciary Rule until July 1, 2019. The Department is not modifying 
the substance of the information collections at this time; however, the 
current OMB approval periods of the information collection requests 
(ICRs) expire before the new applicability date for the full conditions 
of the PTEs as they currently exist. Therefore, many of the information 
collections will remain inactive for the remainder of the current ICR 
approval periods. The ICRs contained in the exemptions are discussed 
below.
    PTE 2016-01, the Best Interest Contract Exemption: The information 
collections in PTE 2016-01, the BIC Exemption, are approved under OMB 
Control Number 1210-0156 through June 30, 2019. The exemption requires 
disclosure of material conflicts of interest and basic information 
relating to those conflicts and the advisory relationship (Sections II 
and III), contract disclosures, contracts and written policies and 
procedures (Section II), pre-transaction (or point of sale) disclosures 
(Section III(a)), web-based disclosures (Section III(b)), documentation 
regarding recommendations restricted to proprietary products or 
products that generate third-party payments (Section IV), notice to the 
Department of a Financial Institution's intent to rely on the PTE, and 
maintenance of records necessary to prove that the conditions of the 
PTE have been met (Section V). Although the start-up costs of the 
information collections as they are set forth in the current PTE may 
not be incurred prior to June 30, 2019 due to uncertainty surrounding 
the Department's ongoing consideration of whether to propose changes 
and alternatives to the exemptions, they are reflected in the revised 
burden estimate summary below. The ongoing costs of the information 
collections will remain inactive through the remainder of the current 
approval period.
    For a more detailed discussion of the information collections and 
associated burden of this PTE, see the Department's PRA analysis at 81 
FR 21002, 21071.
    PTE 2016-02, the Prohibited Transaction Exemption for Principal 
Transactions in Certain Assets Between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs (Principal Transactions Exemption): 
The information collections in PTE 2016-02, the Principal Transactions 
Exemption, are approved under OMB Control Number 1210-0157 through June 
30, 2019. The exemption requires Financial Institutions to provide 
contract disclosures and contracts to Retirement Investors (Section 
II), adopt written policies and procedures (Section IV), make 
disclosures to Retirement Investors and on a publicly available Web 
site (Section IV), maintain records necessary to prove they have met 
the PTE conditions (Section V). Although the start-up costs of the 
information collections as they are set forth in the current PTE may 
not be incurred prior to June 30, 2019, due to uncertainty surrounding 
the Department's ongoing consideration of whether to propose changes 
and alternatives to the exemptions, they are reflected in the revised 
burden estimate summary below. The ongoing costs of the information 
collections will remain inactive through the remainder of the current 
approval period.
    For a more detailed discussion of the information collections and 
associated burden of this PTE, see the Department's PRA analysis at 81 
FR 21089, 21129.
    Amended PTE 84-24: The information collections in Amended PTE 84-24 
are approved under OMB Control Number 1210-0158 through June 30, 2019. 
As amended, Section IV(b) of PTE 84-24 requires Financial Institutions 
to obtain advance written authorization from an independent plan 
fiduciary or IRA holder and furnish the independent fiduciary or IRA 
holder with a written disclosure in order to receive commissions in 
conjunction with the purchase of insurance and annuity contracts. 
Section IV(c) of PTE 84-24 requires investment company Principal 
Underwriters to obtain approval from an independent fiduciary and 
furnish the independent fiduciary with a written disclosure in order to 
receive commissions in conjunction with the purchase by a plan of 
securities issued by an investment company Principal Underwriter. 
Section V of PTE 84-24, as amended, requires Financial Institutions to 
maintain records necessary to demonstrate that the conditions of the 
PTE have been met.
    The rule delays the applicability date of amendments to PTE 84-24 
until July 1, 2019, except that the Impartial Conduct Standards became 
applicable on June 9, 2017. The Department does not have sufficient 
data to estimate that number of respondents that will use PTE 84-24 
with the inclusion of Impartial Conduct Standards but delayed 
applicability date of amendments. Therefore, the Department has not 
revised its burden estimate.
    For a more detailed discussion of the information collections and 
associated burden of this PTE, see the Department's PRA analysis at 81 
FR 21147, 21171.
    These paperwork burden estimates, which comprise start-up costs 
that will be incurred prior to the July 1, 2019, effective date (and 
the June 30, 2019, expiration date of the current approval periods), 
are summarized as follows:
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Best Interest Contract Exemption and (2) Final 
Investment Advice Regulation.

    OMB Control Number: 1210-0156.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.
    Estimated Number of Respondents: 19,890 over the three-year period; 
annualized to 6,630 per year.
    Estimated Number of Annual Responses: 34,046,054 over the three-
year period; annualized to 11,348,685 per year.
    Frequency of Response: When engaging in exempted transaction.
    Estimated Total Annual Burden Hours: 2,125,573 over the three-year 
period; annualized to 708,524 per year.
    Estimated Total Annual Burden Cost: $2,468,487,766 during the 
three-year period; annualized to $822,829,255 per year.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Prohibited Transaction Exemption for Principal 
Transactions in Certain Assets between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs and (2) Final Investment Advice 
Regulation.

    OMB Control Number: 1210-0157.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.

[[Page 56559]]

    Estimated Number of Respondents: 6,075 over the three-year period; 
annualized to 2,025 per year.
    Estimated Number of Annual Responses: 2,463,802 over the three-year 
period; annualized to 821,267 per year.
    Frequency of Response: When engaging in exempted transaction; 
Annually.
    Estimated Total Annual Burden Hours: 45,872 over the three-year 
period; annualized to 15,291 per year.
    Estimated Total Annual Burden Cost: $1,955,369,661 over the three-
year period; annualized to $651,789,887 per year.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Prohibited Transaction Exemption (PTE) 84-24 for 
Certain Transactions Involving Insurance Agents and Brokers, Pension 
Consultants, Insurance Companies and Investment Company Principal 
Underwriters and (2) Final Investment Advice Regulation.

    OMB Control Number: 1210-0158.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.
    Estimated Number of Respondents: 21,940.
    Estimated Number of Annual Responses: 3,306,610.
    Frequency of Response: Initially, Annually, When engaging in 
exempted transaction.
    Estimated Total Annual Burden Hours: 172,301 hours.
    Estimated Total Annual Burden Cost: $1,319,353.
3. Regulatory Flexibility Act
    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal Rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) or any other laws. 
Unless the head of an agency certifies that a final rule is not likely 
to have a significant economic impact on a substantial number of small 
entities, section 604 of the RFA requires that the agency present a 
final regulatory flexibility analysis (FRFA) describing the rule's 
impact on small entities and explaining how the agency made its 
decisions with respect to the application of the rule to small 
entities. Small entities include small businesses, organizations and 
governmental jurisdictions.
    The final rule merely extends the transition period for the PTEs 
associated with the Fiduciary Rule. The impact on small entities will 
be determined when the Department issues future guidance after 
concluding its review of the rule and exemption. Any future guidance 
will be subject to notice and comment and contain a Regulatory 
Flexibility Act analysis. Accordingly, pursuant to section 605(b) of 
the RFA, the Deputy Assistant Secretary of the Employee Benefits 
Security Administration hereby certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities.
4. Congressional Review Act
    This final rule is subject to the Congressional Review Act (CRA) 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the 
Comptroller General for review. The final rule is a ``major rule'' as 
that term is defined in 5 U.S.C. 804, because it is likely to result in 
an annual effect on the economy of $100 million or more.
5. Unfunded Mandates Reform Act
    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to prepare a written statement 
assessing the effects of any Federal mandate in a proposed or final 
agency rule that may result in an expenditure of $100 million or more 
(adjusted annually for inflation with the base year 1995) in any one 
year by State, local, and tribal governments, in the aggregate, or by 
the private sector. For purposes of the Unfunded Mandates Reform Act, 
as well as Executive Order 12875, this final rule does not include any 
federal mandate that the Department expects would result in such 
expenditures by State, local, or tribal governments, or the private 
sector. The Department also does not expect that the delay will have 
any material economic impacts on State, local or tribal governments, or 
on health, safety, or the natural environment.
6. Executive Order 13771: Reducing Regulation and Controlling 
Regulatory Costs
    The impacts of this final rule are categorized consistently with 
the analysis of the original Fiduciary Rule and PTEs, and the 
Department has also concluded that the impacts identified in the RIA 
accompanying the Fiduciary Rule may still be used as a basis for 
estimating the potential impacts of this final rule. It has been 
determined that, for purposes of E.O. 13771, the impacts of the 
Fiduciary Rule that were identified in the 2016 analysis as costs, and 
that are presently categorized as cost savings (or negative costs) in 
this final rule, and impacts of the Fiduciary Rule that were identified 
in the 2016 analysis as a combination of transfers and positive 
benefits are categorized as a combination of (opposite-direction) 
transfers and negative benefits in this final rule. Accordingly, OMB 
has determined that this final rule is an E.O. 13771 deregulatory 
action.

G. List of Amendments to Prohibited Transaction Exemptions

    The Secretary of Labor has discretionary authority to grant 
administrative exemptions under ERISA and the Code on an individual or 
class basis, but only if the Secretary first finds that the exemptions 
are (1) administratively feasible, (2) in the interests of plans and 
their participants and beneficiaries and IRA owners, and (3) protective 
of the rights of the participants and beneficiaries of such plans and 
IRA owners. 29 U.S.C. 1108(a); see also 26 U.S.C. 4975(c)(2). The 
Secretary of Labor has found that the delay finalized below is: (1) 
Administratively feasible, (2) in the interests of plans and their 
participants and beneficiaries and IRA owners, and (3) protective of 
the rights of participants and beneficiaries of such plans and IRA 
owners.
    Under this authority, and based on the reasons set forth above, the 
Department is amending the: (1) Best Interest Contract Exemption (PTE 
2016-01); (2) Class Exemption for Principal Transactions in Certain 
Assets Between Investment Advice Fiduciaries and Employee Benefit Plans 
and IRAs (PTE 2016-02); and (3) Prohibited Transaction Exemption 84-24 
(PTE 84-24) for Certain Transactions Involving Insurance Agents and 
Brokers, Pension Consultants, Insurance Companies, and Investment 
Company Principal Underwriters, as set forth below. These amendments 
are effective on January 1, 2018.
    1. The BIC Exemption (PTE 2016-01) is amended as follows:
    A. The date ``January 1, 2018'' is deleted and ``July 1, 2019'' 
inserted in its place in the introductory DATES section.
    B. Section II(h)(4)--Level Fee Fiduciaries provides streamlined 
conditions for ``Level Fee Fiduciaries.'' The date ``January 1, 2018'' 
is deleted and ``July 1, 2019'' inserted in its place. Thus, for Level 
Fee Fiduciaries that are robo-advice providers, and therefore not 
eligible for Section IX (pursuant to Section IX(c)(3)), the Impartial 
Conduct Standards in Section II(h)(2) are applicable June 9, 2017, but 
the remaining conditions of Section II(h) are applicable July 1, 2019, 
rather than January 1, 2018.
    C. Section II(a)(1)(ii) provides for the amendment of existing 
contracts by

[[Page 56560]]

negative consent. The date ``January 1, 2018'' is deleted where it 
appears in this section, including in the definition of ``Existing 
Contract,'' and ``July 1, 2019'' inserted in its place.
    D. Section IX--Transition Period for Exemption. The date ``January 
1, 2018'' is deleted and ``July 1, 2019'' inserted in its place. Thus, 
the Transition Period identified in Section IX(a) is extended from June 
9, 2017, to July 1, 2019, rather than June 9, 2017, to January 1, 2018.
    2. The Class Exemption for Principal Transactions in Certain Assets 
Between Investment Advice Fiduciaries and Employee Benefit Plans and 
IRAs (PTE 2016-02), is amended as follows:
    A. The date ``January 1, 2018'' is deleted and ``July 1, 2019'' 
inserted in its place in the introductory DATES section.
    B. Section II(a)(1)(ii) provides for the amendment of existing 
contracts by negative consent. The date ``January 1, 2018'' is deleted 
where it appears in this section, including in the definition of 
``Existing Contract,'' and ``July 1, 2019'' inserted in its place.
    C. Section VII--Transition Period for Exemption. The date ``January 
1, 2018'' is deleted and ``July 1, 2019'' inserted in its place. Thus, 
the Transition Period identified in Section VII(a) is extended from 
June 9, 2017, to July 1, 2019, rather than June 9, 2017, to January 1, 
2018.
    3. Prohibited Transaction Exemption 84-24 for Certain Transactions 
Involving Insurance Agents and Brokers, Pension Consultants, Insurance 
Companies, and Investment Company Principal Underwriters, is amended as 
follows:
    A. The date ``January 1, 2018'' is deleted where it appears in the 
introductory DATES section and ``July 1, 2019'' inserted in its place.

    Signed at Washington, DC, this 24th day of November 2017.
Jeanne Klinefelter Wilson,
Acting Assistant Secretary, Employee Benefits Security Administration, 
Department of Labor.
[FR Doc. 2017-25760 Filed 11-27-17; 11:15 am]
 BILLING CODE 4510-29-P