The Department of Labor’s new rule updating the definition of an investment advice fiduciary will remain on hold as the result of recent legal action, according to WealthManagement.com.
The rule, approved under the Biden Administration, would expand 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.
Last week, the Department of Labor filed a motion in the U.S. 5th Circuit Court of Appeals to hold its appeals in two court cases regarding the rule, saying the matter will need further analysis by the Trump Administration.
“New agency officials are still in the process of onboarding and familiarizing themselves with all of the issues presented by pending litigation,” the filing said. “To allow new DOL officials sufficient time to become familiar with the issues in these cases and determine how they wish to proceed, the government respectfully moves to place these consolidated appeals in abeyance, with status reports due at 60-day intervals.”
Two lawsuits were filed last year against the new rule. The first was filed by a coalition of groups that includes the Federation of Americans for Consumer Choice. The FACC, which represents independent insurance professionals, asserted that the DOL exceeded its authority granted by Congress in approving the rule and goes against precedent set by the courts.
The second lawsuit, filed by nine insurance trade organizations, also claimed the department exceeded its authority, and acted without analyzing impact data in an adequate way to quantify the benefits.
The DOL’s latest action temporarily suspends activity in the pending litigation. The fiduciary rule was due to take effect last September but was temporarily stayed by two district courts who said it suffers from many of the same problems” as a previously vacated version of a fiduciary standard for insurance professionals. A similar rule was put forth by the DOL in 2016 but was vacated two years later by the Court of Appeals for the 5th Circuit.
The government appealed both district court decisions.
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 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.
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