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Photo of Jason Berkowitz, chief legal and regulatory affairs officer

Jason Berkowitz
Chief Legal and
Regulatory Affairs Officer

IRI believes financial professionals should act in their clients’ best interest. That’s why our association advocated for the existing regulatory framework, which effectively protects consumers by holding financial professionals to an appropriate and workable best interest standard – even in the context of rollover and post-rollover advice – without adding new layers of regulation by the U.S. Department of Labor (DOL).

While history and recent activity suggest the DOL will continue to pursue further rulemaking, recent federal court decisions raise serious doubts about whether the DOL even has the authority and jurisdiction to do so.

Years in the Making

Thirteen years ago, DOL decided that too many financial professionals were exploiting perceived loopholes in the law to avoid responsibility for their advice to retirement savers, especially advice related to individual retirement account (IRA) rollovers.

Try, Try Again

To address this alleged problem, DOL proposed changes to the rules that determine when a financial professional’s actions trigger fiduciary status under the Employee Retirement Income Security Act of 1974 (ERISA). Facing widespread opposition, DOL eventually withdrew that proposal. DOL tried again in 2016, but IRI and several other industry groups challenged that rule, and a federal court eventually overturned it, finding that DOL exceeded its authority.

Undeterred, in late 2020 and early 2021, the DOL made yet another attempt to expand the universe of financial professionals subject to ERISA’s fiduciary duties, this time through interpretive guidance. And once again, a federal court has rejected DOL’s efforts.

See You in Court

In 2022, the American Securities Association (ASA) brought a case in the Middle District of Florida challenging DOL’s guidance regarding its interpretation of the “regular basis” prong of the five-part test for fiduciary status. The decision focused on the fact that DOL sought to change its long-standing interpretation of the “regular basis” prong in a manner that is not supported by the plain text and historical application of the five-part test.

What Does “Regular” Mean?

For more than 40 years, regular basis was understood as requiring more than one-time advice about plan assets. DOL now asserted for the first time that this prong could be satisfied by an initial instance of advice about plan assets (e.g., a rollover recommendation) combined with an expectation of a continuing relationship focused on non-plan assets (i.e., post-rollover). The court ruling mentioned at the outset vacated this interpretation, finding it arbitrary and capricious, and, therefore, unlawful.

Two Strikes

This is the second court to reach this conclusion, following a September 2022 decision from the Southern District of New York. A third court is expected to issue a ruling in a similar case in the coming months. DOL could, and likely will, appeal these decisions.

Robust Consumer Protections 

The regulatory framework has evolved to provide far more robust consumer protections since DOL first attempted to rewrite the rules for fiduciary investment advice, calling into question whether any further action is necessary or appropriate. And, of course, any new rule would likely face legal challenges against the backdrop of a growing body of precedent that runs counter to DOL’s desired outcome.

What’s next? 

A new fiduciary proposal is on DOL’s regulatory agenda, and we know DOL staff strongly desires to move in this direction. A proposal could include changes to the rules determining who is a fiduciary and the rules that fiduciaries must follow to receive compensation for their services. The ruling in the ASA case could provide support for the staff’s desire to proceed, as a new rule could potentially eliminate the disconnect between the rule text and DOL’s interpretation.

On the other hand, DOL has numerous other priorities that could take precedence over a new fiduciary proposal, including extensive rulemaking requirements under the recently enacted Secure 2.0 Act. Potential rulemaking could also be impacted by the impending departure of DOL Secretary Marty Walsh and the rapidly approaching 2024 presidential election cycle.

So how will this all play out? Only time will tell, but hopefully, we won’t have to wait another thirteen years to find out.


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