In issuing the proposed fiduciary definition changes, the department said it was a more narrowly tailored approach than the 2016 fiduciary rule, which was promulgated under the Obama administration, broadened the definition of a person or entity taking on fiduciary responsibilities and replaced the five-part test.
In 2018, a three-judge panel at the 5th U.S. Circuit Court of Appeals in New Orleans vacated the rule in a 2-1 decision, saying the department exceeded its legal authority.
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, according to Fred Reish, a partner at Faegre Drinker Biddle & Reath. The judges thought that a sales pitch was not a relationship of trust and confidence and that participants would know that, he added.
In an Oct. 30 call with reporters, an administration official said: "This time around, the test itself is much more targeted to only include those circumstances where, to use the 5th Circuit's terminology, they're relationships of 'trust and confidence.'"
Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute, a trade group representing members that account for 90% of annuity assets in the U.S., disagrees with that characterization.
"They're playing around with some words to try and shoehorn this into something that they can argue is consistent with the 5th Circuit decision and the text of ERISA, but as I look at it, they are trying to bring advisers under the fiduciary umbrella without a real true relationship of trust and confidence as required by the 5th Circuit," he said on a call with reporters. "I struggle to see how this is a more narrowly tailored, carefully crafted approach. It seems to me that they've reshuffled the deck chairs on the Titanic, but we're still headed for that same iceberg."
Kent Mason, a Washington-based partner with law firm Davis & Harman LLP who has worked for groups who opposed the 2016 fiduciary rule, said the proposed fiduciary definition is "effectively the same as the 2016 fiduciary rule that was invalidated. DOL only made cosmetic changes. A lawsuit challenging this proposal — if finalized as is — does not even seem too difficult. (It's) sad that we have to do this again."
While it's still early in the process, Berkowitz said that if the proposal is enacted largely as is, IRI and its sister trade organizations will consider all options to oppose it, including litigation.
Reish said a lawsuit challenging the proposal is almost guaranteed, and if Biden wins re-election next year the case could ultimately be decided by the U.S. Supreme Court. He noted that when the 5th Circuit decision was handed down in 2018, the Trump administration did not appeal the decision.
Consumer groups welcomed the latest proposal. In a joint statement, steering group members of the Save Our Retirement coalition, which includes organizations like AARP, AFL-CIO, Consumer Federation of America and the Pension Rights Center, said the proposal is "a major milestone in the long fight to bring millions of Americans one step closer to a secure, dignified retirement."