A federal judge in Texas has temporarily blocked the Department of Labor’s (“DOL”) “Retirement Security Rule” (the Fiduciary Rule) ahead of its September 23, 2024, effective date.
The DOL has been on a fourteen-year quest to replace a fiduciary definition in place since 1975. The saga began in 2010, but fierce industry opposition led to the proposal’s quick withdrawal. The DOL tried again in 2016, but the 5th Circuit Court of Appeals ordered the rule to be vacated in 2018. On October 31, 2023, the DOL proposed yet another rule defining who an investment advice fiduciary is under the Employee Retirement Income Security Act (“ERISA”). On April 23, 2024, the DOL finalized the Fiduciary Rule.
The Fiduciary Rule replaces the 1975 five-part test’s requirements that advice be provided on (1) a “regular basis” pursuant to (2) a “mutual agreement, arrangement or understanding” that (3) it would serve as “a primary basis for investment decisions” with a broader test that is based on the retirement investor’s reasonable expectations and context.
Three insurance agents licensed in Texas and the Federation of Americans for Consumer Choice filed suit, arguing that the rule “completely defies” the 2018 ruling by the 5th Circuit that invalidated the preceding fiduciary rule. The plaintiffs further contend that the DOL’s prohibited transaction exemption for rollover recommendations constitutes an “arbitrary and capricious” overreach.
The judge for the case reckoned the plaintiffs are “likely to succeed on the merits” that the Fiduciary Rule conflicts with ERISA by redefining ‘investment advice fiduciary’ to include non-trust-and-confidence relationships and that the plaintiffs will “suffer irreparable harm in the absence of relief.” The DOL’s defense asserts that the 5th Circuit’s decision back in 2018 was wrong, but the judge declared “that is an argument for the en bac Fifth Circuit or the Supreme Court.”
The Fiduciary Rule is also currently facing another legal challenge in the U.S. District Court for the Northern District of Texas brought by nine insurance trade groups.
The September 23 effective date for the Fiduciary Rule is suspended “until further order from the court.”
Retirement savings is a bi-partisan public policy issue. Americans spend their lifetimes contributing to their retirement savings so they can have those funds in retirement. It is crucial both plan sponsors and participants understand the rules and expectations involved in receiving investment advice or investment education.
If requested, BrownWinick can assist you in understanding how the suspension of the Fiduciary Rule impacts your plan and your plan participants. Please contact Caleb Brus at 515-558-8867 or Cindy Lande at 515-242-2476.