July 29, 2024
What happened?
On July 26, 2024, a U.S. judge ordered a stay of proceedings that blocked the Department of Labor (DOL) Fiduciary Rule from taking effect. The rule and the amended DOL PTE 2020-02 protection would have taken effect starting September 23, 2024. The Fiduciary Rule’s expanded definition scopes most investment advisers into being fiduciaries for the purposes of ERISA (see here for our prior coverage). This means that those advisers needed a prohibited transaction exemption where their adviser to retirement investors would increase compensation for the adviser. The amended DOL PTE 2020-02 was created to grant such protection, so long as advisers met its requirements. In turn, advisers were preparing for the September 23, 2024, deadline of the initial requirements by making sure they kept the impartial conduct standards and that a fiduciary acknowledgment was ready to be delivered to retirement investors on that date.
The stay was issued because the court found that the industry groups challenging the rule were likely to prevail. What comes next? A potentially lengthy legal process. The trial level is likely to rule against the DOL, as the stay seems to indicate. Next would be an appeal to the Fifth Circuit Court of Appeals, where a panel of 3 judges would hear the appeal. If the DOL fails there, they can appeal for their case to be heard “en banc” by all 17 judges in the Fifth Circuit. If they are still not successful, they could appeal to the Supreme Court for review. Each step on this path can take months. Also, we have an election year that could bring support for the rule from the executive or legislative branch. The good news is that the stay keeps the rule from taking effect while litigation is ongoing.
For court watchers, there is still a second lawsuit against the Fiduciary Rule pending. Also, the Loper Bright decision that took Chevron deference away from administrative agencies was cited by the judge in issuing the stay. The court did not owe deference to the DOL’s interpretation of ERISA. Decisions like these may gain steam if administrative agencies put forward their own interpretations of law that are not explicit in the laws themselves or clearly supported be the legislative intent of Congress.
What does this mean for me?
This is the DOL’s fourth attempt at a fiduciary rule since 2010. This latest attempt is facing legal headwinds. However, compliance programs should be prepared if those winds change.
If your firm has been complying with DOL PTE 2020-02 since 2022, keep complying. This will ensure you have protection against prohibited transactions your firm faces.
If your firm has not complied with DOL PTE 2020-02 before but works with retirement investors, then we recommend minimal preparations while the lawsuits run their course. This means having a fiduciary acknowledgment finalized and checking the impartial conduct standards against the way your firm operates. If the stay is lifted allowing the rule to take effect, or the DOL is ultimately successful in court, then you can quickly come into compliance on any new deadline for this first step of DOL PTE 2020-02.
If your firm requires assistance with understanding and implementing a compliance program, we can help. Contact us today for more information about our services.
