Key Takeaways
- Two Texas Federal District Courts have “stayed” the effective dates of the DOL’s new fiduciary regulation and related exemptions, meaning that the private sector will not have to comply with those rules until the cases are resolved.
- The next step will be for those courts to determine if the regulation and exemptions are valid or should be vacated. After that there will likely be appeals. As a result, the “old” regulation and exemptions will continue to be in effect.
- In addition to the DOL’s guidance, the securities and insurance industries are subject to regulators that focus on the distribution of their products and services. My last post, Fiduciary Rule 45, discussed NAIC Model Regulation #275, which addresses recommendations of annuities generally and, as a result, covers recommendations of annuities in connection with rollover recommendations.
- This post contrasts the SEC and SEC staff guidance on rollover recommendations—which would cover annuities that are securities, and the NAIC Model Regulation #275’s provisions concerning rollovers into annuities that are not securities.
The stay of the effective dates of the amended fiduciary regulation and amended exemptions means that the “old” DOL fiduciary regulation (the 5-part test) and the existing exemptions continue in effect indefinitely. As a result, it is unlikely that an insurance producer will be a fiduciary under ERISA or the Internal Revenue Code when making a recommendation to a participant to take his or her money out of a retirement plan and roll over into a “qualified” annuity (or, more technically, an Individual Retirement Annuity).
Since the probability is that an insurance producer will not be an ERISA or Code fiduciary, the applicable standard of conduct for a rollover recommendation will either be NAIC Model Rule #275 (“Suitability in Annuity Transactions Model Regulation”, as adopted by almost all of the states MDL-275.pdf (naic.org)) for insurance-only annuities or, for annuities that are securities (e.g., variable annuities or registered index-linked annuities, or RILAs), the SEC’s Regulation Best Interest for broker-dealers or its “Commission Interpretation Regarding Standard of Conduct for Investment Advisers”.
