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Labor Department Finishes Fiduciary Rule for Retirement Plans

The Labor Department completed on Tuesday the Trump administration’s fiduciary rule governing advice affecting the trillions of dollars in retirement accounts. But because the regulation won’t go into effect until after President-elect

Joe Biden

takes office, it is likely to be revised by the new administration.

“I don’t expect it to survive in its current form,” said

Barbara Roper,

director of investor protection at the nonprofit Consumer Federation of America.

The development is the latest in a decadeslong debate over what responsibilities brokers and advisers have to clients when giving investment and other advice in 401(k)-type and individual retirement accounts and how to manage conflicts of interest in the sale of investments in those accounts. A stricter set of regulations from the Obama administration, which imposed tight limitations on conflicted investment advice, sparked an industry backlash and was struck down by a federal appeals court in 2018.

The Trump regulation restores a looser 1975 definition of who is considered a fiduciary, and therefore is required to act in clients’ best interest when advising people on IRAs and 401(k)s. It also gives brokers and other types of advisers an exemption from a prohibition against earning commissions under the federal law that governs retirement accounts, as long as those advisers pledge to act in their clients’ best interest.

The regulation aligns the treatment of retirement accounts with the Securities and Exchange Commission’s recently enacted Regulation Best Interest governing brokers’ interactions with investors in taxable accounts and IRAs. The SEC regulation requires brokers to act in clients’ best interest when making specific recommendations and requires brokerage firms to disclose and take steps to reduce conflicts of interest, among other things.

The Trump administration’s rule also would cause rollovers, in which billions of dollars move annually from 401(k)s to IRAs, to be more heavily regulated. The financial-services industry is critical of that change.

Consumer advocates criticized the Trump administration’s approach, arguing it would weaken standards under the Employee Retirement Income Security Act, or Erisa, of 1974.

But now, because of delays in completing the proposal, the regulation’s fate appears to be in jeopardy. Under federal law, the rule is slated to go into effect 60 days after it is published in the Federal Register. Under that timetable, it won’t become effective before Mr. Biden takes office on Jan. 20.

That gives the Biden administration an opportunity to put the regulation on hold temporarily and revise it, a process that could take months. The Trump administration took a similar approach with respect to the Obama administration’s regulation in this area.

“There is no doubt that Biden will do exactly what Trump did,” said

Jason Roberts,

chief executive of Pension Resource Institute, a consulting firm for retirement advisers.

Mr. Roberts expects the Biden administration’s Labor Department to seek to expand the definition of who should be considered a fiduciary for retirement plans. He also expects the incoming administration to propose a system for managing conflicts of interest, including those that arise in the sale of products such as annuities that pay commissions.

Since the Obama-era regulation was struck down by a federal appeals court in 2018, the Labor Department has required the financial services industry to adhere to a temporary policy, which the department said will remain in place for about another year.

After that, Mr. Roberts said, it isn’t clear what regulatory structure the industry must adhere to until the Biden administration completes its own regulation—and whether some of the Trump-era regulation may play a role.

Write to Anne Tergesen at [email protected]

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