With that history in mind, Reish expects the department to propose that "a single rollover recommendation, if the adviser receives compensation directly or indirectly related to that, then it will be a fiduciary recommendation, and it will be a prohibited transaction because you used your fiduciary authority to cause yourself to make more money. Then you'd need an exemption."
To get there, Reish said the department will have to keep prior legal rulings in mind, especially the 2018 Fifth Circuit decision. The judges in that decision ruled against the department in part because they didn't buy that there could be fiduciary status established when there wasn't a relationship of trust and confidence between an adviser and client, Reish explained. The judges thought "that a sales pitch was not a relationship of trust and confidence and that participants would know that," he added.
Reish said the department in its new proposal will have to deal with the "trust and confidence" issue, possibly by defining what a relationship of trust and confidence looks like or establishing some sort of test.
"I don't know how they're going to get around that, but I do think they do have to get around the Fifth Circuit decision," Reish said. "They certainly can't just write something that on the face of it directly conflicts with the Fifth Circuit."
Reish expects the department to include an explanation in its proposal regarding how its new rule-making initiative steers clear of the 2018 ruling.
But regardless of its explanation, industry groups are already signaling heavy opposition to the proposal. Whenever the rule is finalized — it must go through a notice-and-comment period first — Reish expects it to face a legal challenge.
"I can't imagine that it won't be (challenged)," he said. "I don't even see that as one of the options on the table."