Abstract
On April 18, 2016, the Department of Labor issued its Final Rule on fiduciary responsibility replacing its inadequate 1975 regulations. The retirement income environment had change drastically over the previous 40 years. Private sector traditional defined benefit pension plans had all but disappeared, replaced with defined contribution (mainly 401(k)) plans that almost always resulted in a lump sum distribution at termination or retirement, which was was typically rolled over into an IRA (individual retirement arrangement). The new regulations addressed the new situation by greatly expanding the definition of “fiduciary” to include those proffering investment advice to 401(k) plans and IRAs and reworking the prohibited transaction rules and their exemptions. This has afforded important protections for retirement investors and has created a challenging new new world for the financial services industry. This article examines the development, content and consequences of the Final Rule.
On April 8, 2016, the Department of Labor (DOL) issued its new Fiduciary Regulations (actually seven fiduciary regulations issued on the same day) that are referred to collectively as the “Fiduciary Regulations,” “Final Regulations” or “Final Rule.” The definition of “fiduciary” was greatly expanded to effectively apply it to defined contribution (DC) retirement plans (mainly Section 401(k) plans) and to Individual Retirement Arrangements (IRA). The Prohibited Transaction rules and their exemptions have also been reworked and expanded upon. The new regulations will take effect April 10, 2017.
The Final Rule is the first substantive change made to the 1975 regulations adopted soon after the passage of the Employee Retirement Income Security Act of 1974 (ERISA). This article examines the origin and development of the Final Rule, its content and its likely consequences. Our primary focus will be on the transfer of assets from Section 401(k) plans to IRAs. However, the new regulations also apply to health savings accounts, Archer medical savings accounts and Coverdell (Section 529) educational savings accounts and will be a “game changer” for the financial services industry.
Background
The concept of fiduciary responsibility has its roots in the English common law. Those named in trust documents were held to a high standard of behavior and performance in the interests of the trust and its principals. ERISA took the concept a giant step further. It deems, not only those named as a fiduciary but also all those who act as a fiduciary. 1
ERISA Section 3(21)A deems any person with discretionary authority or control to manage or dispose of assets, anyone who provides investment advice for a fee or anyone with discretion or authority over the administration of a covered pension plan to be a fiduciary. That amounts to plan sponsors, trustees, administrators and anyone who proffers investment advice for a fee.
ERISA applies to employer-sponsored retirement and welfare benefits in the private sector. It does not apply to the public sector or to “church” plans (although church plans may elect ERISA coverage in some situations). ERISA was designed to apply most directly to the traditional defined benefit (DB) pension plans that were dominant at the time of its passage. It requires that covered plans meet minimum standards of participation, vesting, accrual, funding, reporting and disclosure and fiduciary responsibility. ERISA also created the Pension Benefit Guaranty Corporation (PBGC).
While these standards and the Pension Benefit Guaranty Corporation have worked well to protect the vested benefits of participants and beneficiaries in DB pension plans, they (especially the funding standard) may be responsible for the near demise of traditional DB pension plans in the private sector and their replacement by DC, especially Section 401(k), plans.
In 1985, there were over 170,000 DB pension plans with 38 million total participants and 30 million active participants. By 2013, those numbers had dropped to 44,000 plans, 39 million total participants and 15 million active participants. By 2013, there were 637,000 DC plans with 93 million total participants and 77 million active participants. Approximately 527,000 of the 637,000 (82.7%) DC plans were Section 401(k) plans with 77 million total participants and 64 million active participants. 2
The 1975 Regulations and the Five-Part Test
Shortly after the passage of ERISA, the DOL issued regulations defining a “fiduciary.” The 1975 Regulations contained a provision stating that an individual or firm would be deemed a fiduciary offering investment advice for a fee only when five specified factor were met. They were (1) rendered advice as to the value of securities or other property and recommended investing in, purchasing, selling any securities or other property, (2) on a regular basis, (3) pursuant to a mutual arrangement or understanding with the plan or plan fiduciaries, (4) the advice would serve as a primary for investment decisions and (5) the advice would be individualized and based on the needs of the plan. 3 The five-part test did not appear in ERISA or the Internal Revenue Code (IRC or Code).
The five-part test made sense when most retirement income plans were traditional DB plans. However, once the shift to Section 401(k) and other DC arrangements was underway, it was overly restrictive and served to thwart the intensions of ERISA. In addition to the shift from DB to DC plans, over the last 40 years, many complex financial products have emerged that frequently have various layers of fees and expenses. 4
Section 401(k) Plans
Section 401(k) was added to the Code by the Revenue Act of 1978. The Internal Revenue Service (IRS) issued regulations in 1981. In these early years, 401(k) plans were viewed as supplemental retirement savings arrangements that augmented a traditional private sector DB pension plan. Similar 403(b) and 457(b) plans serve the same function in the public sector and for some nonprofit organizations.
As employers withdrew from the traditional DB pension market, they found that DC 401(k) plans were a handy substitute. Newly established employers shunned traditional pension plans, with their ERISA funding and other requirements, in favor of the simpler and less risky 401(k) plans that shifted much of the cost and all of the risk from the employers to the participants and beneficiaries.
Most 401(k) plans are “contributory.” The employer matches all or part of the employee’s contribution (elective deferral). The specifics vary greatly among plans. In 2016, the maximum combined employer and employee elective deferral to a 401(k) plan was $18,000. Employees age 50 and over may make an additional $6,000 per year catch up deferral.
Table 1 captures the experience of 401(k) plans from 1985 through 2013. By 1985, there were 29,869 plans with 10.3 million active participants and $143.9 billion in assets. Since 2000, the first year for which complete data are available, they have grown from 348,053 to 527,047 plans. By 2013, there were 76.6 million total participants, 64.5 million active participants, and $4.2 trillion in assets. A very large and growing percentage of participants had investment control of assets. The experience of total and active participants was almost identical.
Section 401(k) Plan Experience, Selected Years, 1985 to 2013 a .
Participants in thousands; assets in millions.
Source. U.S. Department of Labor, Employee Benefits Security Administration. Private Pension Plan Bulletin Historical Tables and Graphs, 1975 to 2013. Released September 2015. Tables E20 and E25. Retrieved from http://savingmatters.dol.gov/ebsa/pdf/historicaltables.pdf.
Section 401(k) plans are IRS-qualified pension plans. They are covered by ERISA and subject to its fiduciary and other requirements. However, since the participant almost always had investment control of assets (Table 1), the value of that coverage was limited.
Individual Retirement Arrangements and DOL Oversight
IRAs were created by ERISA for workers not covered by an employer-sponsored retirement plan. In 1981, the Economic Recovery Tax Act established “universal IRAs” for all workers. However, in 1986 the Tax Reform Act reduced IRA deductibility. The 2016 contribution limit for an IRA is $5,500 plus $1,000 catch up for those age 50 and over.
There are now various types of IRAs: traditional, Roth, SEP, SIMPLE and rollover. The last is of most interest here. Section 401(k) and other DC pension plans almost always result in a lump-sum distribution upon retirement or separation. If the recipient retains “constructive receipt” for more than 60 days, the distribution is subject to income taxation in that year. If the participant is under age 59½, the distribution is also subject to a 10% excise tax (early withdrawal penalty). The solution is to put the distribution into a rollover IRA.
As indicated in Table 2, over four million taxpayers per year shift several billion dollars from 401(k) and similar pension plans into IRAs. In 2013 (the most recent year for which data are available), 4.7 million taxpayers transferred over $404 billion in assets into IRAs for an average amount of $85,992 per transfer.
Rollover IRAs, Selected Years, 2000 to 2013.
Note. In recent years, approximately 94% of rollover taxpayers (accounts) and 97% of all rolled over funds went into traditional IRAs. The remainder went into SEP plans and Roth IRA plans.
Source. Internal Revenue Service, Statistics of Income Division. Table(s) 1. Taxpayers with Individual Retirement Arrangements (IRA) Plans, by Type of Plan. Retrieved from www.irs.gov.
Most 401(k) and other DC pension plan balances end up in rollover IRAs. As reported in Table 3, there is substantially more money in IRAs than in 401(k) plans: $7.3 trillion compared to $4.7 trillion. Indeed, since 2010, there has been more money held in IRAs than in all DC pension plans combined.
Assets in 401(k) Plans, Total Defined Contribution Plans and IRAs, Selected Years, 1995 to 2015 (Assets in Trillions of Dollars).
Note. IRAs are not considered defined contribution plans.
Source. Investment Company Institute. 2016 Investment Company Fact Book. Figures 7.5 and 7.9, pp. 237 and 241. Retrieved from https://www.ici.org/policy/regulation/fees/ref_12b1_fees.
IRAs were not covered by ERISA so they originally were not governed by the DOL. They were only subject to the IRS regulation. However, in 1978, Executive Order 12108 (also known as White House Reorganization Plan No. 4 of 1978) granted the DOL regulatory authority over IRAs under the prohibited transactions provisions of the IRC Section 4975. 5
Fees and Expenses
The DOL’s Employee Benefits Security Administration (EBSA) explored 401(k) fees and expenses. It found that they fell into three categories: (1) plan administration fees to pay for things such as record keeping, accounting, legal and trust services; (2) investment fees (the largest) that are generally assessed as a percent of assets invested and deducted directly from investment returns and (3) individual service fees to cover the cost of optional features such as taking loans from the plan or exercising participant investment directives.
In addition there are three types of investment services: (1) sales charges (also called loads or commissions) for buying or selling securities and other property (computed in different ways); (2) management fees, which are ongoing charges for managing assets usually stated as a percent of assets invested and (3) other fees for record keeping, issuing statements and toll-free telephone access.
In addition, many 401(k) plans (and IRAs) invest in mutual funds that may have annual 12b-1 fees that are ongoing and paid out of fund assets and used to compensate brokers and sales persons and to pay for advertising and other distribution expenses. Section 12b-1 fees emerged from the Security Exchange Commission’s (SEC) 1980 regulations under the Investment Company Act of 1940. Generally, they range from 0.25% to 1.0% (the maximum allowed) of fund assets. Shares in mutual funds are divided into three classes. Class A shares generally have front end loads and no or low 12b-1 fees. Class B shares do not have an upfront sales charge; but they may have a “contingent deferred sales charge” if the shares are surrendered before the surrender period. They may also have 12b-1 fees. Class C shares have high 12b-1 fees but no front-end or back-end loads or sales charges.
The SEC is currently examining the appropriate use of 12b-1 fees. Approximately 32% of 12b-1 fees are used to pay for administrative services, 5% for advertising and sales promotion and 63% for compensating broker-dealers and others. 6 It is estimated that 12b-1 fees generate about $10 billion annually.
According to the Investment Company Institute, 12b-1 fees are on the wane. In 2014, only 17% of all 401(k) plan assets were subject to them. While a convenience for financial advisors, 12b-1 fees pose a risk for plan sponsors. The 2012 401(k) Mutual Fund Fee Disclosure Rule requires sponsors to clearly disclose all fees associated with their plans.
From a plan sponsor’s point of view, a cousin of 12b-1 fees is “revenue sharing.” While 12b-1 fees are paid by the retirement investor and must be disclosed in the plan prospectus, revenue sharing refers to payments made by financial advisors or entities from their profits to other intermediaries as compensation for their promotional and distribution efforts. Revenue sharing amounts or percentages do not appear in mutual fund prospectives.
Revenue sharing and 12b-1 fees create the same risk of inequitable distribution of plan expenses that the plan sponsors are supposed to understand and disclose. Thus far, most of the attention has been directed at the more visible 12b-1 fees. But it may be only a matter of time before revenue sharing attracts DOL scrutiny. 7
Impact of Fees and Expenses
Unlike traditional DB pension plans that pay a retirement annuity for the life of the participant and his or her surviving spouse (assuming that a joint and survivor option was not waived), 401(k) and other DC plans almost always pay a lump-sum distribution to the participants upon retirement or separation. The amount of the payment is the balance in the plan. That balance is severely affected by the fees and expenses that have been levied over the years. The accumulated fees and expenses are in effect subtracted from the plan’s rate of return on investment (ROI) and thus diminish the funds available at retirement. This is no minor matter.
Table 4 shows the interaction between gross ROI and plan fees and expenses for a fund with a balance of $50,000 (and no contributions, withdrawals or loans) compounded over 10, 20 and 30 years. For an active Section 401(k) plan, the lack of additional contributions is unrealistic. However, ongoing contributions would mask the effect of low earnings and high fees.
Impact of Accumulated 401(k) Plan Fees and Expenses Over Time at Different Rates of Return.
Note. This assumes that no additional contributions were made and that no loans or withdrawals were taken from the fund. Calculations based on a $50,000 present value.
Source. Author’s calculations.
Note the impact of a compound interest rate (or ROI) over time. If left alone for 30 years, at an average 6% rate of return the $50,000 balance will grow $301,129. At 5.0% ROI it would grow to $233,387 and at 4.0% to $165,675. A rather modest change in the rate of return, up or down, has quite an impact on the fund balance.
Consider further the impact of differing levels of fees and expenses from 0.5% to 2.5%. The differences in the balance at the 10-, 20- and 30-year marks are quite staggering. Given that many 401(k) plan participants and IRA owners are conservative investors who favor low-yielding money market funds, fees and expenses often erode the principal (balance).
In effect, the true rate of return on such funds is ROI net of fees and expenses—and that can even be negative. And in so many cases, the 401(k) participant or IRA owner is unaware of this. Indeed, 401(k) plan sponsors and other fiduciaries are often not well informed either.
In general, retirement investors would be well advised to use well-known low-cost 401(k) plan and IRA providers such as Fidelity Investments, Vanguard and TIAA-CREF.
Precursors to the Final Regulations: Schedule C and Section 408(b)(2)
The Final Rule on fiduciary responsibility does not stand alone. Rather, it is the third element in a three-pronged development. The first prong was an update of Form 5500, Schedule C (Service Provider Information), that became effective for 2009 plan years. Schedule C applies to all persons who provided services to or had transactions with large retirement and health and welfare plans during the reporting year to the extent that they received compensation of $5,000 or more, direct and indirect.
The second prong was that in 2007 the DOL issued proposed regulations under ERISA section 408(b)(2) for the first time. Hearings were held in March 2008, and in July 2010, the DOL issued an interim final rule. After receiving 45 written comments from plan sponsors, fiduciaries, service providers and others, the DOL issued final rule 408(b)(2) regulations (aka the 401(k) Fee Disclosure Rule) in February 2012, effective July 2012. 8 A companion rule under Section (404(a)(5) was directed at plan participants and became effective a month later.
The consensus a year later was that the 408(b)(2) and 404(a)(5) regulations had not been effective. The financial service providers were able to continue to obfuscate their fees by “data dumping” and by issuing convoluted explanations that referenced other documents. Few plan sponsors or participants had the time, interest or expertise needed to sort things out. 9
At first glance, the Schedule C and the 408(b)(2) requirements appear similar. Both were designed to help plans fulfill their fiduciary obligation to ensure that fees and expenses were reasonable, identify conflicts of interest and require disclosure of direct and indirect compensation received by service providers. Upon closer examination they are quite different.
The 408(b)(2) regulations apply to ERISA fiduciaries, registered investment advisors, record keepers and brokers of large and small retirement plans (but not welfare plans) subject to ERISA who expect to receive $1,000 or more in compensation for services provided. Note that the expected compensation is prospective. 10 The Form 5500 Schedule C threshold is $5,000 and it is retrospective.
The Revised Regulations on Fiduciary Responsibility
The third prong of the development began in October 2010 when the DOL proposed to revise the existing 1975 regulations on fiduciary responsibility under ERISA. It had become frustrated with the narrowness of the regulations and the five-part test and their nonapplication to 401(k) and other DC pension plans and to IRAs that had become so important after 1975.
The 2010 proposal was met with a firestorm of protest from the financial services industry. In September 2011, the DOL withdrew the proposal with the understanding that it would re-propose at a future date. 11
In April 2015, the DOL proposed new regulations that were quite different from those of 2010. The five-part test was replaced with a more complex and detailed arrangement that would apply to ERISA-covered plans, IRAs and other non-ERISA plans mentioned above. 12 They are referred to collectively in this article as IRAs. The issuance of the 2015 proposal was followed by a notice and comment period that resulted in over 3,000 comment letters, 30 separate petitions with 300,000 submissions and public hearings at which over 75 individuals gave testimony. 13 In April 2016, the DOL released its Final Rule.
The Final Rule
The Final Rule that amends the 1975 regulations is less onerous than 2010 or 2015 proposed regulations due in large part to the Best Interest Contract (BIC) exemption (discussed below). The DOL sought to accommodate the financial services industry and some of its long-standing compensation practices. Nevertheless, the Final Rule still imposes a significant implementation and compliance burden on financial service firms and investment advisers that provide investment advice to retirement plans and IRAs.
The Final Rule is over 1,000 pages long and very complicated. Most important, it extends the ERISA definition of “fiduciary” (parties providing investment advice for a fee or other compensation) to 401(k) plans and IRAs, expands the prohibited transaction provisions of ERISA and the IRC and extends and expands upon a number of exemptions to the prohibited transaction provisions and create some new ones.
Prohibited Transactions
The Final Rule replaced the restrictive five-part test of the 1975 regulations with a definition that includes individuals and firms that provides investment advice to a retirement plan, plan fiduciary, participant, beneficiary, IRA or IRA owner. Investment advice includes a recommendation as to the advisability of buying, selling or holding any security or other property, how funds should be invested after being rolled over, transferred or distributed from a 401(k) plan to an IRA or any other investment related advice. To be considered a fiduciary, the person or firm must receive a fee or other compensation (broadly defined) in connection with proffering the advice. Furthermore, the advice must be rendered under a written or verbal understanding that acknowledges that the adviser is acting as a fiduciary and that the advice is tailored for the need of the 401(k) plan or IRA.
What constitutes a recommendation is also defined broadly. Providing a list of appropriate securities from which the recipient may choose is considered a recommendation.
A fiduciary is required to act with prudence and loyalty to the plan, plan participant, IRA or IRA owner; not engage in “prohibited transactions” as defined in Section 4975 of the Code and may not engage in self-dealing or have other conflicts of interest. 14
Exemptions
Taken literally, the expanded definitions of fiduciary and prohibited practices would nullify a number of long-standing compensation practices in the financial services industry. However, a number of exemptions lessen their impact. The two most important are the Best Interest Contract exemption and the Principal Transaction exemption. The exemptions do not exempt anyone from the extended definition of fiduciary. Rather, they relieve the fiduciary from the prohibited transaction restrictions of ERISA and the Code and allow the continued use of compensation practices that would otherwise be prohibited.
The BIC Exemption
The Best Interest Contract exemption is the most important and most commonly used of the exemptions. It allows investment firms and their agents to make recommendations to retirement investors and continue to use traditional commission-based compensation practices providing they comply with several specified requirements. The essence of the BIC exemption is the Best Interest Contract that financial advisors are required to provide to each retirement investor. The requirements include (1) acknowledging in writing to the retirement investor that they are acting as fiduciaries under ERISA and the Code; (2) acknowledging that the financial institution and its advisors will adhere to the Impartial Conduct Standards by providing investment advice that is in the Best Interest of the retirement investor, for reasonable compensation and that any statements made about recommended transactions, fees and compensation, material conflicts of interest and any other relevant matter are not materially misleading at the time made; (3) that the financial institution has adopted policies and procedures designed to ensure compliance with the Impartial Conduct Standards and has designated an individual responsible for addressing Material Conflicts of Interest and monitoring advisors adherence to the Impartial Conduct Standards and (4) clearly and prominently disclosing all fees and charges, stating that the retirement investor has a right to obtain copies of pertinent documents free of charge, and providing access to the financial institution’s website.
The BIC exemption also contains a number of prohibitions. They include a prohibition of exculpatory provisions that disclaim or limit the financial institution’s liability for the violation of contract terms and any limit or waver of the retirement investor’s right to bring or participate in a class action lawsuit against the financial institution. While arbitration and conciliation agreements are allowed, requiring that they by conducted at distant venues or otherwise restricting convenient access is prohibited. 15
The BIC exemption only applies in the context of investment advice proffered to a retirement investor defined as (1) a participant or beneficiary of a retirement plan who has investment control of assets or who may take a distribution of those assets, (2) a beneficial owner of an IRA acting on behalf of the IRA and (3) a “retail fiduciary” of a retirement plan or IRA other than a bank, insurance company, registered investment advisor, registered broker-dealer or a fiduciary responsible for the management of $50 million or more in assets.
Financial advisors who charge a level fee per transaction are allowed to comply with a reduced set of regulations. This has been dubbed “BIC Lite.” It is expected that this arrangement will allow advisors to recommend rollovers from 401(k) plans to IRAs without having to execute a Best Interest Contract. However, such a recommendation still creates a fiduciary liability and must be in the investor’s best interest.
Failure to comply with the requirements of the BIC exemption could result in a prohibited transaction and trigger excise taxes (penalties) under the IRC and exposure to financial liability claims under ERISA.
The Principal Transaction Exemption
Financial transactions are usually made on a “principal” or “agency” basis. In a principal transaction where the financial institution buys or sells securities from its own inventory or proprietary account, it acts as a dealer. In an agency transaction, it acts as a broker.
In a principal transaction, the broker-dealers are compensated by charging a “mark-up” or a “mark-down” on the market price of the security. In the absence of an exemption, this would constitute a prohibited transaction. The 1975 regulations permitted broker-dealers to engage in principal transactions with ERISA-covered pension plans and IRAs provided they had no discretionary authority under the plan or IRA. 16
The Final Rule allows principal transactions from the broker-dealers inventory or account and so-called “riskless principal transactions” (which are the functional equivalent of agency transactions) providing the financial institution and its advisors engage in a number of BIC-like exemption activities.
Other Exemptions
There are a number of areas that are not considered fiduciary recommendations providing certain safeguards are met. One is the “Seller’s Exemption,” which allows dealings between large sophisticated independent plan fiduciaries capable of evaluating risks, but only if the fiduciary is a bank, insurance company, registered investment adviser, registered broker-dealer or a person responsible for the management of at least $50 million in plan assets.
Another is the so-called “Hire Me Exemption.” An individual does not become a fiduciary by advertising or responding to a request for proposals. Similarly, third party administrators, platforms service providers that facilitate investment decisions, are not fiduciaries provided the menu of choices is not a list tailored to the investor.
There is also an “Employee Exemption” that allows human resources and benefits administration employees of a plan sponsor performing their normal duties to communicate with participants and beneficiaries without becoming fiduciaries providing they receive no compensation for the advice beyond their normal pay. Relatedly, general communications about the plan, newsletters and platforms for the use of plan participants or IRA owners and educational materials do not constitute investment advice. 17
It appears that most of the financial services industry is accepting of the Final Rule and is adopting policies and procedures to operate under its provisions. In general, the Final Rule will cause a move away from commission-based brokerage accounts toward fee-based advisory accounts. 18 Some, however, are resisting the new rules.
Resistance
With the aid of their allies in Congress and elsewhere, some members of the financial services industry have attempted to rescind the new regulations. The fiduciary and related provisions of the Final Rule were effective June 7, 2016, the earliest date allowed by the Congressional Review Act. If federal regulations have a potential impact of more than $100 million, Congress has 60 days in which to pass a joint resolution of disapproval. The House of Representatives passed such a resolution (H.J. Res. Opposing the expanded definition of “fiduciary”) on April 28, 2016, by a vote of 234 to 183 and the Senate followed on May 2, 2016, with a vote of 56 to 41. The measure was vetoed by President Obama on June 8, 2016. 19 The matter was then tabled. It is unlikely that there will be future legislative action on this for the remainder of the Obama Administration.
Challenges to the Final Rule have shifted to the courts. By June 2016, five lawsuits had been filed against the DOL by assorted financial industry groups alleging a number of complaints under various statues and the First and Fifth Amendments of the U.S. Constitution. 20 There may be more on the way.
As of this writing, the consensus appears to be that neither congressional action nor litigation will hold up implementation of the Fiduciary Rule if Secretary Clinton wins in November. If Mr. Trump wins (and the Republicans retain control of Congress), the Final Rule could be in jeopardy. However, even if it is rescinded, the Final Rule may already have changed the game. The increased attention to 401(k) plan and IRA fees and expenses and the heightened awareness of sponsor fiduciary responsibility may have made their mark. Many plan sponsors have already shifted to from broker-dealers to financial advisors who provide fiduciary services and more will do so in the future. 21
The DOL has announced that it would not apply the Final Rule until after April 10, 2017, with some provisions not in effect through the end of 2017. It also announced that it would adopt a compliance rather than an enforcement approach during the transition period. 22
Conclusion
The massive shift from traditional DB pension plans to DC, mainly 401(k) plans with their lump-sum distributions being rolled over into IRAs, created a situation that allowed excessive multilayered fees and expenses. To a significant extent this thwarted the intent of ERISA. The DOL proposed regulations in 2010 and in 2015 that met with fierce opposition from the financial services industry. In response, the DOL ameliorated its proposal mainly with the BIC, Principal Transaction and other exemptions that made the 2016 Final Rule less onerous to the industry.
While opposition to the Final Rule continues in the courts and, depending on the outcome of the November 2016 election, may reappear in Congress, things will not return to the way they were. Much of the financial services industry has already adjusted to the requirements of the Final Rule and it would be impossible for it to backtrack. Retirement investors and their advocates are now much more aware of the fees and expenses associated with 401(k) plans and especially IRAs. The Final Rule has already done yeoman service for the retirement investor and it promises to do more.
Footnotes
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.