The U.S. Department of Labor has released its package of proposed changes to the regulation defining fiduciary advice and to the exemptions for conflicts and compensation for investment recommendations to retirement plans, participants (including rollovers), and IRAs.

The DOL published its proposed fiduciary regulation and prohibited transaction exemptions in the Federal Register on November 3, 2023. That was the beginning of a process that will end with the final rules and their effective and applicability dates.

The “effective” date is the day on which the guidance becomes final as a regulation or exemption. The “applicability” date is the day on which the new rules must be complied with. The proposals said that the effective date and the applicability date would be the same. However, that may not be the case with the final rules.

This article is my best guess about the timing of the process to complete the DOL’s work.

The hearings on the proposals were held in mid-December, 2023. The comment period ended on January 2, 2023. The DOL now starts its work on reviewing all of the comments—approximately 20,000—and drafting the final rules. There is not a legal time limit for doing that, but the DOL (and the White House) have indicated that this is a high priority project for them. Assuming a faster than usual process, the DOL could conceivably complete writing the final rules in three months. That would take us to early April.

At that point, the DOL would send its drafts of the final rules (including the preambles, analysis, and so on) to the Office of Management and Budget (OMB) in the White House. Again, assuming a faster than usual processing of the final rules, the OMB could complete its review in 45-60 days, which would take us to approximately to the first of June.

After the OMB completes its review, the final rules will be published in the Federal Register. However, they don’t become “effective” until 60 days after being published in the Federal Register. That takes us to approximately to the first of August.

That is a fast process compared to the usual regulatory timeline. It could easily be 30 days later than that, which would mean the first of September or so.

Regardless of whether it is August or September, the remaining question is:  When will financial service companies and their representatives need to comply with the regulation and exemptions?

That is a more difficult question because there is no legal requirement or established history for an exact date. I can see three reasonably possible scenarios:

• The effective date and the applicability date could be the same day (g., early August or September in my hypothetical timeline). That would be problematic for the private sector. At that point there would have only been 60 days to review the final rules, develop compliance procedures and forms, enhance supervisory processes, train advisors and agents, and so on. That’s not realistic.
• The effective date and the applicability date could be the same, but there could be a good faith compliance period—perhaps until January 1, 2025. I don’t think it is realistic to even comply on a good faith basis so quickly.
• The applicability date could be delayed—perhaps until January 1, 2025. Even four or five months is a really short time for the private sector to implement these changes. Firms that are already complying with the existing PTE 2020-02 could do it, but it would be very difficult for independent insurance agents and insurance companies who will use PTE 84-24, as amended. On the other hand, I don’t know if the DOL will be willing to delay the applicability date beyond the inauguration of the President on January 20, 2025, in case there is a change of political parties in the White House.

These are just best guesses. But, by mid-Summer, we should have a better idea of the timeline and the pressures to develop policies, procedures and processes that will satisfy the new rules.

Concluding Thoughts

My thought is that firms should be earnestly studying the proposals and deciding how to comply as currently written. That is the only safe course that I can see. Otherwise, it could prove to be difficult to be in compliance by the applicability date.

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The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.