Within a week of each other, two separate federal district courts in Texas preliminarily stayed the effective date of the Department of Labor’s (DOL’s) Retirement Security Rule: Definition of an Investment Advice Fiduciary and certain amendments to related class prohibited transaction exemptions (referred to collectively as the Investment Advice Rule). The Investment Advice Rule is the DOL’s latest attempt in its highly contentious effort to update when a person is treated as an investment advice fiduciary under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Investment Advice Rule was intended to go into effect in September, but as a result of the district courts’ preliminary rulings, the Investment Advice Rule will not go into effect pending court action.
Specifically, in Federation of Americans for Consumer Choice, Inc. v. United States Department of Labor and American Council of Life Insurers v. United States Department of Labor, the courts held that the plaintiffs are likely to succeed in their claim that the Investment Advice Rule violates ERISA and exceeds the DOL’s authority. As a result, the courts have agreed to suspend the Investment Advice Rule until there is a final decision in the ultimate case. The decision is significant because it shows that the district courts are likely to rule against the DOL when they decide the underlying case.
The district courts provided multiple reasons for why the plaintiffs are likely to win their case. One of the most important is that the Investment Advice Rule appears to conflict with ERISA for the same reasons as the DOL’s 2016 regulatory effort, which was blocked by the Fifth Circuit in 2018. Specifically, the Fifth Circuit held that a fiduciary relationship requires a relationship of “trust and confidence.” In this case, the district courts found that the Investment Advice Rule would have applied to transactions that do not satisfy this requirement and, similar to the DOL’s 2016 regulations, would conflict with ERISA.
The DOL is expected to appeal the decisions, which would be heard by the Fifth Circuit; however, as this is the same court that invalidated the DOL’s earlier attempt to amend the fiduciary regulation, the DOL will likely face an uphill battle in attempting to overturn the district courts’ decisions.
| Title | File Type | File Size |
|---|---|---|
| Insider August 2024 | .2 MB |
