DOL withdraws appeal over decision vacating fiduciary rollover advice guidance

The Department of Labor has decided against appealing a federal court's decision vacating a piece of guidance that established rollover recommendations as fiduciary investment advice, according to the American Securities Association, the lawsuit's plaintiff.

In April, the Labor Department filed a notice of appeal in U.S. District Court in Tampa, Fla., stating that it would contest the judge's ruling to the 11th U.S. Circuit Court of Appeals in Atlanta. But Monday, the ASA said the Department of Justice, which was representing the Labor Department, voluntarily dismissed its appeal.

"We are pleased the DOL dropped its appeal of the district court's decision to strike down its attempt to change existing rules about retirement advice without a formal rule-making," said Chris Iacovella, ASA president and CEO, in the statement. "The district court correctly held the DOL's guidance was arbitrary and capricious and had no basis in law. ASA remains dedicated to protecting the rule of law, investor choice, and the rights of America's working families and retirement savers from the overreach of the administrative state."

The ASA filed a lawsuit in February 2022 to challenge 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.

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.

In a February 2023 decision, Judge Virginia M. Hernandez Covington struck down FAQ 7, but sided with the Labor Department and upheld FAQ 15 in the case — American Securities Association vs. U.S. Department of Labor et al.

A Labor Department spokesman on Monday referred requests for comment to the Justice Department; the Justice Department did not immediately respond.

Notably, 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.

"Things have changed so much in the retirement market, and we are trying to acknowledge those changes (and) reflect how the system works best in this new world," Lisa M. Gomez, assistant secretary of labor for the Employee Benefits Security Administration, said during a May 11 speech at the Employee Benefit Research Institute's Spring Policy Forum.

Ms. Gomez added that the agency is "reflecting on challenges" the rule previously faced as it prepares a new proposal.