The Secretary of Labor, John Acosta, announced recently that no further delays will apply to the Department of Labor’s new Fiduciary Rule on investment advice conflicts of interest and related prohibited transaction exemptions.  The effective date of the Rule is June 9, 2017, with an enforcement date of January 1, 2018.  The final Fiduciary Rule significantly expands the circumstances in which broker-dealers, investment advisers, insurance agents, plan consultants and other intermediaries are treated as fiduciaries to ERISA plans and individual retirement accounts (IRAs).  When treated as fiduciaries, these individuals are precluded from receiving compensation that varies with the investment choices made or from recommending proprietary investment products, absent an applicable exemption.

Generally, the Fiduciary Rule provides that individuals providing fiduciary investment advice may not receive payments that pose a conflict of interest, unless a prohibited transaction exemption (PTE) applies.  The Rule recognizes several new PTEs, including

1)  “Best Interest Contract Exemption” (BIC Exemption):  Under the BIC Exemption, an advisor and firm may receive commissions and revenue sharing so long as the adviser and firm enters into a contract with its clients that:

  • Commits the firm and adviser to providing advice in the client’s best interest.
  • Warrants that the firm has adopted policies and procedures designed to mitigate conflicts of interest.
  • Clearly and prominently discloses any conflicts of interest that may prevent the adviser from providing advice in the client’s best interests.

2)  Principal Transactions Exemption:  Under this new PTE, an adviser may recommend fixed income securities and sell them from the adviser’s own inventory as long as the adviser adheres to the exemption’s consumer-protection conditions ensuring adherence to fiduciary norms and basic standards of fair dealing.

Financial institutions are advised to adopt policies and procedures ensuring that advisers comply with the Rule’s impartial conduct standards. However, during the transition period (until January 1, 2018), there is no requirement to give investors any warranty of their adoption, and those standards will not necessarily be violated if certain conflicts of interest exist.  Sponsors of ERISA-governed plans, as plan fiduciaries, are advised to clearly identify circumstances where their plan’s record keepers and advisors are acting as fiduciaries, and which services or actions are permitted under the rule’s carve-outs.

Finally, while we recommend complying with the Fiduciary Rule as soon as possible following the June 9th effective date, we note that there exists some uncertainty with the Fiduciary Rule as the DOL (i) continues to evaluate public comments, and (ii) under direction of the Trump Administration, is charged with reexamining the Fiduciary Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.

On November 18, 2016, the IRS recently announced limited relief for employer reporting on Forms 1094 and 1095 for the 2016 tax year. The relief extends the deadline for furnishing statements to individuals, but does not extend the deadline for filings with the IRS. The IRS also provided penalty relief for some filers. The relief set forth in Notice 2016-70 provides:

  • Statements to Individuals Extended. The deadline for furnishing Forms 1095-B and 1095-C to individuals is extended by 30 days, from January 31 to March 2, 2017. No further extension may be obtained by application to the IRS.
  • No Extension for Returns Filed With IRS. The Notice does not extend the due date for filing Forms 1094-B and 1094-C (and related Forms 1095) with the IRS. Accordingly the deadline remains February 28, 2017 for paper filings, and March 31, 2017 for electronic filings. However, filers may obtain an automatic 30-day extension by filing Form 8809 on or before the regular due date.
  • Good Faith Penalty Relief. The IRS will again provide penalty relief for entities that can show they have made good faith efforts at compliance. No penalties will be imposed on entities that report incorrect or incomplete information—either on statements furnished to individuals or returns filed with the IRS—if they can show they made good faith efforts to comply with the reporting requirements. Penalty relief is not available to entities that fail to furnish statements or file returns, miss an applicable deadline, or are otherwise not making good faith efforts to comply.

While the Notice indicates that the IRS does not anticipate providing similar relief for the 2017 tax year, much will depend on changes to the Affordable Care Act under the Trump administration.

Now that we have all had some time to absorb the national election results, many are wondering how the Affordable Care Act will change during a Trump presidency.  While there is a great deal of uncertainty surrounding the future of the ACA, our recommendation to those currently covered by the Act is to continue to comply until any changes have been finalized.

Many believe that an immediate and complete repeal of the ACA is unlikely because the Republicans lack a congressional super-majority (e.g., control of the House of Representatives and a filibuster-proof Senate) and without a comprehensive alternative approach in place, 20 million Americans could lose health coverage in the event of a complete repeal.

Even though an immediate and complete repeal is unlikely, we do expect that there will be changes to specific sections of the Act through the budget reconciliation process, which reaches only the revenue components of the Act or by regulatory action, which modifies the official interpretation of certain aspects of the law.  Any modification or repeal of portions of the Act will require congressional action, which will not be filibuster-proof because the Republican-controlled Senate falls short of the 60 votes required to prevent filibuster.  On the other hand, changes brought by regulatory action would not involve Congress, but would require issuance of new regulations by the newly appointed Secretary of Health and Human Services.

While we can easily predict those sections of the Act that are likely to be targeted under the new administration (e.g., individual mandate, Cadillac tax, employer mandate, employer reporting), such changes are unlikely to be immediate.  However, as this election has shown us, anything is possible.  Nonetheless, we recommend that our clients stay the course with respect to ACA compliance and continue preparing for 2017 as though the Act will remain through the end of 2017.  We will continue to monitor developments in Washington in order to keep our clients up-to-date on changes to the Act and its regulations.