Department of Labor regulators Thursday clarified a rule tightening investment advice standards to allow insurance companies to continue to sell life insurance and annuities into retirement accounts under an exemption.
The exemption, known as the Best Interest Contract Exemption, allows certain fiduciaries to receive compensation that may otherwise be barred.
Clarifications, or technical amendments, were included among 48 pages of changes posted to the Federal Register’s website.
Changes are expected as part of ongoing adjustments to the DOL’s wide-ranging Conflict of Interest rule, a document that lays out how companies and retail distributors sell financial products into the trillion-dollar retirement market.
Among the more important changes issued Thursday were fixes to ensure that insurance companies who chose to sell products under the rule’s Best Interest Contract Exemption can do so.
Under the Conflict of Interest rule’s final version, issued in April, insurance companies relying on the exemption had to be based in a state requiring that actuarial reviews of reserves be conducted annually by an independent actuarial firm.
But such a condition “inadvertently limited the availability of the exemption with respect to insurance companies,” according to the DOL’s amendment.
“To ensure that the exemption is available to insurance companies as the Department clearly intended in its original rulemaking, Section VIII(e)(3)(iii) is corrected to delete the phrase ‘by an independent firm of actuaries,’" the DOL wrote.
State laws require actuarial reviews to make sure insurance companies can pay claims, but the reviews aren't necessarily required to be performed by an independent firm of actuaries.
Because insurance companies are regulated by the states in which they are based, insurers follow the guidance issued by the National Association of Insurance Commissioners and the DOL’s fix is designed to conform with guidance issued by the NAIC.
The DOL is expected to issue more guidance over the next few weeks as industry representatives meet with regulators to clarify details of the 1,023-page rule, the first clauses of which take effect April 10, 2017.
Other corrections issued Thursday fix typographical errors and clarify regulators’ intent in a rule which imposes some of most far-reaching changes to the way retirement accounts are managed in more than 40 years.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]
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