To understand the timing of when a delay might actually go into effect, let’s look at the process. The first step is a 15 day comment period for interested parties to submit comments on whether a delay is appropriate. The second step is for the DOL to evaluate the comments and decide whether to go forward. We think it’s likely they will do so. The next step is for the finalized rule to go back to the Office of Management and Budget (OMB) for approval, probably around March 24. After OMB approves the DOL’s final rule to extend the date, it is published in the Federal Register. Our best guess is that this will happen during the first week in April, i.e., before April 10.
We also expect the DOL will make the delay effective immediately on publication so that the fiduciary rule and exemptions do not become applicable. In most cases, there is a built-in waiting period of 60 days after a final rule is published. This waiting period would put the effective date of the delay in early June, roughly six weeks after the original applicability date.
The DOL can accelerate the effective date of this type of rule for good cause. We expect it will do so and that the justification would be based on the disruptive effect of having an effective date of the delay after the applicability date of the regulation it is designed to delay.
The DOL has also announced a 45 day comment period on whether the fiduciary rule as currently drafted will adversely affect retirement investors. This is to enable the DOL to perform the analysis required in the February 3 Presidential Memorandum calling for a review of the fiduciary regulation.
So what does all this mean? There are three possible outcomes at the end of the 45 day period. DOL will:
- Permit the fiduciary rule and exemptions to become applicable on June 9
- Begin the regulatory process to revoke the rule and exemptions
- Begin the process to modify the rule and exemptions
It is possible that the DOL will not be able to make this decision by June 9 and will further delay the applicability date. But in the end, the outcome has to be one of these three.
The other important point to keep in mind is that the delay and possible revocation or modification of the fiduciary rule does not mean there are no fiduciary rules. The existing rules that have been in place for decades remain in place. But because of the intense focus on fiduciary standards over the last several years, we think it is likely that the existing rules will be subject to greater scrutiny, both from the regulators and the private sector.