A legal battle over the federal government’s revised fiduciary rule drew to a close when the Department of Labor ended its defense of the rule, according to Think Advisor.
The action by the DOL’s Employee Benefits Security Administration followed a ruling by the U.S. Court of Appeals for the 5th Circuit allowing the department to drop its appeal of a stay of the rule.
The new fiduciary rule, approved in 2024 under the Biden Administration, would have expanded the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) to cover financial professionals making one-time recommendations about issues such as rolling over a 401(k) plan and purchasing annuities.
Two district courts in Texas stayed the rule following lawsuits filed by a coalition of financial industry groups whose products would have been affected. The government appealed both district court decisions at the time.
But the DOL subsequently asked the appeals court to hold its appeals in the cases, saying the matter would need further analysis by the Trump Administration, and that “additional time is needed to determine how to proceed in these appeals.”
The department subsequently filed a motion to dismiss its appeal of those cases. The DOL is expected to issue a new fiduciary rule regarding rollovers in May 2026 under the new head of the Employee Benefits Security Administration (EBSA), Daniel Aronowitz.
The updated fiduciary rule was intended to apply when financial services providers give investment advice for a fee to retirement plan participants, individual retirement account owners and plan officials responsible for administering plans and managing their assets. These fiduciaries would have had to adhere to high standards of care and loyalty when they recommend investments and avoid recommendations that favor the investment advice providers’ interests at the retirement savers’ expense.
Under the final rule and amended exemptions, financial institutions overseeing investment advice providers would have been required to have policies and procedures to manage conflicts of interest and ensure providers follow these guidelines.
The DOL said the rule was aimed at protecting retirement investors from improper investment recommendations and harmful conflicts of interest. It was meant to reassure investors that their investment advice provider is working in their best interest and helping to make unbiased decisions.
In a LinkedIn post, the former head of EBSA, Lisa Gomez, said she was not surprised the DOL is dropping its appeal but was disappointed, nonetheless.
“I would have liked to see the Court of Appeals and possibly the Supreme Court take a deeper dive into the rule,” Gomez said, adding that she remains “concerned, as we said in the rule, that while individual retirement investors who are being provided with more and more control and responsibility over how to invest their retirement savings (which should be a good thing), and as products become more complicated, we are not doing our collective best to make sure that we are supporting, empowering and educating those investors.”
A coalition of retirement and industry groups who sued the DOL to overturn the rule included the American Council of Life Insurers, the National Association of Insurance and Financial Advisors (NAIFA), the Insured Retirement Institute, Finseca (a life insurance trade group), and the National Association for Fixed Annuities.
They issued a joint statement that read in part, ““The DOL’s fiduciary-only regulation resurrects a failed 2016 rule that prevented millions of consumers from accessing much-needed retirement financial guidance. Allowing the stay of the effective date to remain in place provides retirement savers with continued relief from these harmful consequences as the court considers the substantial legal issues we have raised regarding this ill-advised regulation.”
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