On April 4, 2017, the U.S. Department of Labor issued a final rule postponing applicability of the conflict of interest rule and related exemptions for sixty days, until June 9, 2017.  The stated purpose of the extension is to allow more time to:  (i) complete the examination required by President Trump’s February 3, 2017 memorandum, which focuses on the rule’s impact on access to retirement products, advice, and information (see our blog here); and (ii) consider possible changes with respect to the conflict of interest rule and related exemptions based on new evidence or analysis developed pursuant to the examination.  The Department stated that it received 193,000 comment and petition letters expressing views on whether it should grant the delay.  Its 63-page release includes a discussion of the comments and hints of “a more balanced approach than simply granting a flat delay and all associated obligations for a protracted period.”

In addition to the general 60-day delay, the Department has delayed most of the requirements for the best interest contract and other new exemptions through January 1, 2018.

In setting separate applicability dates, the Department distinguished between (i) the rule on fiduciary status (who is a fiduciary) and the “Impartial Conduct” standard (acting in the client’s best interest), and (ii) the more onerous requirements of the various exemptions.  The Department hinted that it might let the rule on fiduciary status and the Impartial Conduct standard go into effect as early as June 9th.  In fact, the Department stated:

“[T]here is fairly widespread, although not universal, agreement about the basic Impartial Conduct Standards, which require advisers to make recommendations that are in the customer’s best interest (i.e., advice that is prudent and loyal), avoid misleading statements, and charge no more than reasonable compensation for services (which is already an obligation under ERISA and the Code, irrespective of this rulemaking.”

The Department further stated that it “finds little basis for concluding that advisers need more time to give advice that is in the retirement investors’ best interest and free from misrepresentations in exchange for reasonable compensation.”

In contrast, the Department observed that the onerous requirements for the various exemptions – including the “best interest contract,” which would create a private right of action for IRA clients to sue their advisers over prudence and loyalty – can lead to increased compliance costs in a way that reduces access to retirement products, advice, and information.  The Department emphasized a “compliance first” policy, whereby the Department intends to focus more on assistance in eliminating conflicts and improving compliance more generally than on citing violations and imposing penalties.

The Department is continuing to accept comments on the substance of the fiduciary rule and related exemptions:  the formal comment period ends on April 17, 2017, but the Department stated that it will be open to helpful comments even after that date.

In sum, the message seems to be that the Department is not leaning toward tossing the rule in its entirety or leaving the fiduciary standard to the SEC, but it remains open to analysis of the rule’s impact and thoughtful suggestions for how to reduce conflicts of interest without unduly burdening the retirement advice industry.

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Photo of Russell Hirschhorn Russell Hirschhorn

“Russell has strong subject matter expertise.”

“Russ is extremely responsive and practical. He listens to the client perspective and is hands on and engaged, while also delegating work as appropriate.” 

-Chambers USA

Russell L. Hirschhorn is co-head of Proskauer’s premier ERISA Litigation Group…

“Russell has strong subject matter expertise.”

“Russ is extremely responsive and practical. He listens to the client perspective and is hands on and engaged, while also delegating work as appropriate.” 

-Chambers USA

Russell L. Hirschhorn is co-head of Proskauer’s premier ERISA Litigation Group, which is a significant component of the firm’s ERISA Practice Center and globally renowned Labor and Employment Law Department.  Russell’s practice focuses on employee benefits issues arising under the Employee Retirement Income Security Act of 1974 (ERISA), including class action and complex litigation, U.S. Department of Labor and Internal Revenue Service investigations, and counseling clients on best practices to avoid litigation.

Russell has more than two decades of experience representing plan sponsors, fiduciaries, trustees, and service providers across the country.  His work on behalf of clients has included all types of plans, including 401(k) plans, 403(b) plans, defined benefit plans, employee stock ownership plans, executive compensation plans, health and welfare plans, multiemployer plans, multiple employer plans, and severance plans.  And, it has included the full gamut of claims arising under ERISA, including excessive investment and plan administration fees and investment underperformance claims; cash balance plan litigation; claims for benefits; company stock fund cases; claims for delinquent contributions; ERISA § 510 claims; ERISA statutory claims; ESOP litigation; executive compensation claims; independent contractor claims; independent fiduciary representations; multiemployer fund litigation; plan service provider claims; recoupment of plan overpayments; retiree benefits claims; severance plan claims; and withdrawal liability claims.

Deeply dedicated to pro bono work, Russell has been recognized on several occasions for his commitment to pro bono work including by President George W. Bush in receiving the U.S. President’s Volunteer Service Award.  His pro bono work has included serving as lead litigation counsel in several impact litigations: on behalf of social security recipients whose benefits were unlawfully suspended based on an outstanding warrant, deaf and hard of hearing prisoners in Louisiana prisons seeking disability accommodations, and Swartzentruber Amish in upstate New York to obtain religious exemptions from certain building code requirements. Russell also was a principal drafter of several amicus briefs for the Innocence Project, a legal non-profit committed to exonerating wrongly convicted people.

Photo of Seth Safra Seth Safra

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined…

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined benefit to cash balance and floor-offset arrangements, ESOPs and 401(k) plans—often coordinating qualified and non-qualified arrangements. He also advises tax-exempt and governmental employers on 403(b) and 457 arrangements, as well as innovative new plan designs; and he advises on ERISA compliance for investments.

On the health and welfare side, Seth helps employers provide benefits that are cost-effective and competitive. He advises on plan design, including consumer-driven health plans with HSAs, retiree medical, fringe benefits, and severance programs, ERISA preemption, and tax and other compliance issues, such as nondiscrimination and cafeteria plan rules.

Seth also advises for-profit and non-profit employers, compensation committees, and boards on executive employment, deferred compensation, change in control, and equity and other incentive arrangements. In addition, he advises on compensation and benefits in corporate transactions.

Seth represents clients before the Department of Labor, IRS and other government agencies.

Seth has been recognized by Chambers USA, The Legal 500, Best Lawyers, Law360, Human Resource Executive, Lawdragon and Super Lawyers.