Two federal courts in Texas have granted plaintiffs’ requests to delay the effective date of the DOL’s new fiduciary rule, pending further court action. As a result, the DOL’s most recent final regulations to re-define an “investment advice fiduciary” to cover more investment professionals, retirement accounts, and types of investments will not become effective September 23, 2024 – or possibly ever.
While one court’s ruling provides a stay of the fiduciary rule and PTE 84-24, the other court’s ruling includes the fiduciary rule and all accompanying PTE amendments, including PTE 2020-02.
Reasons for the stay
One lawsuit, filed in the Eastern District of Texas by the Federation of Americans for Consumer Choice and others, requested the court to stay the effective date and vacate the DOL’s final rule and PTE 84-24. Plaintiffs claim these pieces conflict with ERISA in several ways, including
- treating as fiduciaries those who engage in one-time recommendations to roll over assets from an ERISA plan to an IRA, and
- treating IRA fiduciaries as subject to the fiduciary duties under ERISA Title I.
On July 25, the court granted a stay of the effective date for the rule and PTE 84-24, stating the rule was too close to the DOL’s fiduciary rule that was vacated by the U.S. 5th Circuit Court of Appeals in 2018, which also eliminated the “regular basis” and “primary basis” elements of the 1975 Five-Part test.
Another lawsuit, filed in the Northern District of Texas by the American Council of Life Insurers and others, requested a stay of the effective date of the DOL’s new fiduciary rule and all PTE amendments released with the rule. On July 26, this court granted plaintiffs’ request, citing the court order from the Eastern District and agreeing that the DOL’s new fiduciary package conflicts with ERISA and exceeds the DOL’s statutory authority.
Both court rulings state that plaintiffs are likely to succeed on the merits of their claim, with the Northern District stating that “plaintiffs are virtually certain to succeed” with their request for the new rule to be vacated.
Status Quo for now
Investment professionals providing advice to retirement savers should continue operating under the 1975 Five-Part test for determining non-discretionary fiduciary status under ERISA. If an advisor meets all five criteria of that test, the advisor will be deemed to be a fiduciary under ERISA and would need to meet the conditions of the existing PTE 2020-02 (or another exemption) to receive compensation that would otherwise be prohibited.