The Department of Labor will appeal two federal court rulings that halted implementation of its fiduciary investment advice rule, according to filings made in the 5th U.S. Circuit Court of Appeals, New Orleans.
The department’s Retirement Security Rule and related amended prohibited transaction exemptions were finalized in April and changed the test used to determine when someone is an investment advice fiduciary under ERISA. The changes made it so one-time advice, such as rollovers to individual retirement accounts or annuity purchases, must be in an investor’s best interest.
The new rule was set to take effect Sept. 23, but two court rulings in July stopped that.
In a July 25 order, a judge in U.S. District Court in Tyler, Texas, halted implementation of the rule, siding with plaintiffs in a lawsuit brought by the Federation of Americans for Consumer Choice, which represents annuity and life insurance firms, and five insurance firms and independent agents.
The plaintiffs argued in court filings and in oral arguments that the department’s rule exceeds its authority and violates the Administrative Procedure Act.
“Plaintiffs are likely to succeed on the merits of their claim because the 2024 Fiduciary Rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in one-time recommendations to roll over assets from an ERISA plan to an IRA,” Judge Jeremy D. Kernodle wrote in the July 25 order.
The following day, a judge out of the U.S. District Court in Fort Worth, Texas, issued a similar order in a case brought by nine insurance groups.
In the latter case, the judge wrote in a July 26 order that the rule “exceeds the DOL’s authority by departing from the common law. Just as the 2016 Rule conflicted with the statutory text when it attempted to broaden ‘fiduciary’ just six years ago.”
The plaintiffs in the both lawsuits claim the new rule is sustainably similar to a 2016 rule that was struck down in 2018 by a three-judge panel at the 5th Circuit.
The Department of Justice, which is representing the Labor Department in court, on Sept. 20 made filings in both cases giving notice of its plans to appeal the decisions.
