The Department of Labor plans to challenge a federal court’s decision vacating a piece of guidance that established that rollover recommendations were considered fiduciary investment advice.
The department filed a notice of appeal April 14 in U.S. District Court in Tampa, Fla., noting that it will contest the judge’s ruling to the 11th U.S. Circuit Court of Appeals in Atlanta.
In February, Judge Virginia M. Hernandez ruled in favor of the American Securities Association in its lawsuit that was filed in February 2022.
The ASA lawsuit challenged April 2021 guidance — a series of frequently asked questions — related to the Labor Department's investment-advice exemption that took effect in February 2021. The exemption permits investment-advice fiduciaries to receive compensation for more types of guidance, including advice to roll over assets to an individual retirement account from a retirement plan.
Chiefly, the ASA lawsuit took issue with two of the Labor Department's FAQs concerning rollover advice recommendations — FAQ 7, which outlines when rollover advice is considered to be on a "regular basis," a component of the five-part test used to determine whether an investment professional or financial institution is a fiduciary, and FAQ 15 that details the factors financial institutions and investment professionals should consider and document on how a rollover is in a client's best interest.
Ms. Covington in her ruling struck down FAQ 7, but she sided with the Labor Department and upheld FAQ 15 in the case — American Securities Association vs. U.S. Department of Labor et al. She also rejected the Labor Department's motion to dismiss the case and upheld that FAQ 7 didn't have to go through a formal notice-and-comment period.
Separately, the Labor Department is currently working on a rule-making initiative that could broaden who's considered a fiduciary under ERISA by amending the regulatory definition of the term fiduciary.