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DOL Fiduciary Rule Exemptions

Final Rule: 29 CFR Parts 2509, 2510 and 2550

Published: April 6, 2016

Takes Effect: April 10, 2017

Full Compliance By: January 1, 2018

There has been much discussion over the Department of Labor’s changes to its rule regarding fiduciaries with respect to retirement investment advice to plan sponsors, plan participants and IRA owners. The rule’s changes will directly affect the way an annuity producer does his or her business.

In October, the DOL published a FAQ to help those affected by this rule bring themselves into compliance with the fiduciary requirements. This FAQ discussed the new rule, the current prohibited transaction exemption (PTE) allowance and the new Best Interest Contract Exemption (BICE). It also dove into many questions, including how annuities need to be handled under these new conditions.

With respect to annuities, the type of annuity decides under which exemption, if any, a transaction falls.

There are two different types of exemptions under the revised Rule—PTE 84-24 and BICE. PTE 84-24 is not new but was revised when the DOL revised its rule in April 2016. Immediate annuities, traditional annuities, declared rate annuities and fixed rate annuities fall under PTE 84-24. Fixed indexed and variable annuities do not fall under PTE 84-24. These annuities would fall under BICE.

As stated in the DOL’s FAQ, “the chief differences between the full BICE and the PTE84-24 are that the full BICE provides broader relief for compensation received on annuity sales (not just insurance commissions); requires the execution of the Best Interest Contract in transactions with IRA owners; requires that financial institutions put in place anti-conflict policies and procedures; and imposes different disclosure obligations than PTE 84-24. Both exemptions require adherence to the impartial conduct standards and neither exemption requires execution of a contract for advice given to ERISA covered plans or their participants.”

While the revised DOL rule significantly affects procedures for annuity producers, it also opens up opportunities for carriers to create new annuity products that are designed to fall under the PTE 84-24 instead of being subject to BICE. April 2017 is fast approaching. Even with the current litigation to delay the effective date, all indications are that those entities affected by this revised rule must start complying by April 2017. McHugh Consulting Resources is experienced in annuity product compliance and filing and can help with any new product filings that need to be approved in time for the rule’s April 2017 effective date. Please give us a call if we can be of assistance in your annuity endeavors.

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