DOL Issues Long-Awaited Fiduciary Rule FAQs

November 3, 2016

10445191_Practical_lawOn October 27, 2016, the Department of Labor (DOL) issued FAQs in connection with the DOL’s April, 2016 final fiduciary investment advice rule and the related new and amended prohibited transaction exemptions issued with the final rule (PTEs). The FAQs provide guidance on the application of the terms of the PTEs, particularly on the application of the best interest contract exemption (BICE) to advisers and financial institutions.

On April 6, 2016, the DOL issued a final rule that replaces the existing regulatory interpretation of fiduciary investment advice under Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 (ERISA) (final rule). In connection with this final rule, the DOL also issued new PTEs and several amendments to existing PTEs currently used throughout the financial industry for certain investments made by ERISA plans. For more information on the final rule, see Practice Note, Definition of Fiduciary Investment Advice.

Most significantly, the DOL issued BICE, which provides a new PTE that permits investment advice fiduciaries covered under the final rule to receive what would otherwise constitute prohibited compensation for providing investment advice to retirement plan participants and beneficiaries, IRA owners and plan sponsors of small non-participant-directed plans with regard to their purchase of certain investment products, if certain stringent conditions are met.

Following the issuance of the final rule, many practitioners, financial institutions and advisers requested additional guidance from the DOL on the application of the final rule, BICE and related PTEs. The new FAQs provide additional guidance on the application of the terms of and the final rule and new exemptions, including on:

For more details on the FAQs, read Practical Law’s Legal Update, DOL Issues FAQs on the Fiduciary Investment Advice Rule Focused on BICE Compliance.