A federal court in Texas has granted plaintiffs’ request to delay the effective date of the DOL’s new fiduciary rule that would have assigned ERISA fiduciary status to more investment professionals, including insurance agents. The DOL’s new definition of fiduciary will not become effective September 23, 2024 and is stayed until further order of the Court. The Court also stayed the effective date of the amended PTE 84-24, which the DOL had amended to apply solely to independent insurance agents.
Reasons for the stay
Although the Court order includes details on several reasons for granting the stay, the Court summarizes as such:
“Plaintiffs are likely to succeed on the merits of their claim because the 2024 Fiduciary Rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in onetime recommendations to roll over assets from an ERISA plan to an IRA. DOL’s related amendments to Prohibited Transaction Exemption 84-24 are also unreasonable and arbitrary and capricious.”
What about PTE 2020-02?
The DOL’s regulatory package changing the definition of an “investment advice fiduciary” included amendments to expand PTE 2020-02 and to eliminate the availability of several other PTEs. These were not included in the Court’s stay order because the plaintiffs, an insurance industry trade association and others in the insurance industry, did not include them in their request.
Now what?
Pending clarification from the DOL, presumably the amendments to PTE 2020-02 and the other PTEs will still become effective on September 23, 2024, along with the one-year transition period for full compliance with PTE 2020-02. The DOL stated in its preamble to the amended PTE 2020-02 that each of the PTEs “operates independently and should continue to do so if any component of the rulemaking is invalidated.”
This means that PTE 2020-02 would still be the primary PTE available to most providers of non-discretionary fiduciary investment advice that need a PTE to receive compensation that would otherwise be prohibited. The big difference now is that only non-discretionary investment advice fiduciaries under the existing rules would need a PTE. And one-time rollover recommendations do not typically trigger fiduciary status under existing regulations.
Until we have more guidance, only investment professionals and financial institutions whose service models trigger fiduciary status under the existing rules may need to prepare to comply with the amended PTE 2020-02 by September 23, 2024.