Breaking: DOL Reverts to 5-Part Fiduciary Test After Retirement Security Rule is Struck Down
Shortly after final judgments entered in the Northern and Eastern Districts of Texas this week officially vacated the Biden-era 2024 final rule, “Retirement Security Rule: Definition of an Investment Advice Fiduciary,” the Department of Labor’s Employee Benefits Security Administration late Wednesday restored the Employee Retirement Income Security Act’s five-part test for determining whether a person is an investment advice fiduciary.
The vacatur notice in the Federal Register by EBSA reflects the judicial resolution of the legal challenges to the 2024 final rule and to amendments of associated prohibited transaction exemptions and restores ERISA’s five-part test.
“The challenged regulation wrongly sought to impose ERISA fiduciary status on securities brokers and insurance agents when there was not a relationship of trust and confidence.”
EBSA’s Daniel Aronowitz
In a March 18 press release, the EBSA said it “has no current plans to engage in notice and comment rulemaking in this regard and remains focused on its core mission, redoubling its efforts to make employer-based U.S. retirement plans the strongest and most innovative in the world. The department will consider whether any additional guidance, including transitional or non-enforcement relief, is appropriate.”
In July 2024, two federal district courts stayed the implementation of the 2024 final rule and the amendments to the associated PTEs, and final judgments have now been entered in both cases, vacating the 2024 final rule and PTE amendments.
“The challenged regulation wrongly sought to impose ERISA fiduciary status on securities brokers and insurance agents when there was not a relationship of trust and confidence,” said Assistant Secretary of Labor for Employee Benefits Security Daniel Aronowitz. “The Securities and Exchange Commission and state regulators regulate the activities of securities brokers and insurance agents and will continue to do so.”
Former EBSA leader chimes in
The late-Wednesday news drew a quick and lengthy response on LinkedIn from Lisa Gomez, who led EBSA under the Biden administration.
“This is a rule I worked hard on alongside an incredible team while leading EBSA. My signature is on it. So, this one is personal,” Gomez wrote. “I, for one, will take some time to fully process where things stand and what the best next steps should be to ensure that retirement savers, plan sponsors, and advisers have the tools and information they need.”
Gomez went on to note that the five-part test “is a decades-old framework designed for a very different marketplace than the one retirement savers experience today—before the rise of rollovers in a retirement saver’s decision making process, before the increase in complicated advice models and complex investment products, and before millions of Americans were asked to navigate retirement largely on their own.”
She also called the DOL’s statement that it does not currently plan to revisit this through new rulemaking but will consider whether any additional guidance, including transitional or non-enforcement relief, is appropriate as an invitation to continue the discussion.
More reaction
The news also drew a quick response from the American Council of Life Insurers.
“Today’s swift and sure action by the Department of Labor protects consumers and their access to information about financial protection. ACLI applauds the strong leadership of Secretary DeRemer, Deputy Secretary Sonderling, and EBSA Assistant Secretary Aronowitz to make a positive difference for Americans working to build greater financial certainty through retirement,” said ACLI President and CEO David Chavern.
Also commenting on the news Wednesday was House Education and Workforce Committee Chairman Tim Walberg (R-MI), who issued the following statement after a federal court vacated the Biden-Harris fiduciary rule:
“Putting a stop to the Biden-Harris fiduciary rule is the right decision. It repeated the same problems as the previous version that was struck down by the courts and would have expanded DOL’s authority beyond what Congress intended.
“This rule would have made it harder for retirees and savers to get the advice and access the products they need to plan for retirement. Instead of helping, it risked limiting choices and increasing costs.
“Striking it down helps ensure Americans can make the best decisions for their own financial futures without unnecessary government interference.”
As this is a breaking story, stay tuned to 401(k) Specialist for additional analysis.
SEE ALSO:
• Texas Judge Signs Order Officially Ending Fiduciary Rule
• DOL Lets Biden-Era Fiduciary Rule Die in Court
• ERISA Litigation Reform Act Advances to House Floor
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.