Upcoming Release of the New Fiduciary Investment Advice Rule

The Department of Labor is on the verge of unveiling a forthcoming “Retirement Security” rule. This rule represents a fresh set of regulations aimed at clarifying the circumstances under which non-discretionary investment recommendations by advisors to retirement plans, plan participants, and IRA owners will trigger fiduciary status under ERISA and the Internal Revenue Code.

When an advisor is classified as a fiduciary, they must adhere to rigorous standards of prudence and loyalty. Furthermore, ERISA mandates that fiduciaries abstain from participating in certain “prohibited transactions” that could potentially create conflicts of interest between the fiduciary and the investor. Such conflicts can arise when a fiduciary can boost their compensation by suggesting investments with higher fees or advocating for an IRA rollover.

Over the past decade, the Department of Labor has made multiple efforts to expand the range of advisory services covered by the fiduciary definition to ensure that advice always serves the best interests of retirement savers, including recommendations regarding IRA rollovers. Previous versions of the DOL’s revised ERISA 3(21) fiduciary rule and its interpretation of the “regular basis” component in Prohibited Transaction Exemption (PTE) 2020-02 have been legally contested by industry stakeholders and subsequently invalidated.

Once the new proposed rule is officially published, the Department of Labor will seek input from the industry and conduct hearings before moving forward to finalize the new fiduciary rule by the next summer. The timing is crucial for the DOL to safeguard the final rule from potential repeal if there is a change in the presidential administration following the 2024 election.

While the exact approach adopted by the DOL remains uncertain until the proposal is released and thoroughly assessed, it is anticipated that one-time IRA rollover recommendations will be incorporated into the definition of fiduciary investment advice.

As always, IRALOGIX continues to vigilantly monitor this regulation, and our platform and procedures will persist in assisting our clients in navigating these regulatory requirements with minimal disruptions to their operations.  We will provide further updates in the months ahead.