The Department of Labor (DOL) has announced the release of a new retirement security rule, commonly referred to as the “fiduciary rule,” which has been highly anticipated and controversial in the financial industry. This rule is set to be officially released at a White House event at 3:30 p.m. Eastern Time and is expected to be attended by President Joe Biden.
The rule aims to amend the regulatory definition of the term “fiduciary.” In doing so, it intends to provide a more appropriate and specific definition for individuals or entities that provide investment advice for a fee to employee benefit plans and individual retirement accounts (IRAs). This clarification is significant because it determines when such individuals or entities are considered fiduciaries, thereby subjecting them to certain legal and ethical obligations regarding the handling of retirement accounts and investments.
This new amendment to the fiduciary rule encompasses a wide range of aspects related to investment practices, plan sponsors, participant expectations, and individuals holding IRAs who are seeking or receiving investment advice. Additionally, it considers developments in the investment marketplace, especially focusing on compensation structures that might create conflicts of interest for advisers.
The process for implementing this rule has been ongoing for some time. The proposed rule has been under review since September, and now that it is being made available for public comments, this comment period is expected to last for 60 days. After collecting and considering these comments, the Department of Labor (DOL) will work on shaping the final regulation, which could take an additional 60 to 90 days. Following this, the rule will undergo review by the Office of Management and Budget (OMB), and, after another 30 to 60 days, it will be published in its final form in the Federal Register.
The history of this rule dates back to 2016 when the DOL first pursued a fiduciary rule that expanded the definition of who could be considered a fiduciary and replaced a previous five-part test. However, it was struck down in 2018 by a federal appeals court. A less rigid version of the rule was finalized in 2020 during the Trump administration. The current version of the new rule has also faced strong opposition, with critics arguing that it may negatively impact retail investors and their ability to save for retirement.