With DOL’s new fiduciary rule on hold, what are plan sponsors’ compliance considerations?
In July, a judge put the Department of Labor’s new Retirement Security Rule, which was set to go into effect September 23, on hold, where it seems likely to remain until after the presidential election.
While this case is pending, others in the insurance industry have been fighting the Retirement Security Rule. The American Council of Life Insurers, the National Association of Insurance and Financial Advisors, the Insured Retirement Institute and the National Association for Fixed Annuities and others filed a lawsuit May 24. They are seeking to overturn the fiduciary rule finalized last month because it “undermines the expertise of state authorities who are responsible for overseeing annuities.”
As this fiduciary rule saga continues, we talked to Allie Itami, an employee benefits partner at Lathrop GPM, who focuses on fiduciary compliance under ERISA and advocates for employer and service provider clients before the DOL on investigations, audits and regulatory matters.
Q: What are the compliance considerations in light of the stay on the fiduciary rule for plan sponsors and employers/?
A: Plan sponsors and employers have few compliance items to implement under the 2024 fiduciary rulemaking and were already in a position of waiting to see how service providers modified disclosures, service scope, and pricing. With the stays, they will wait longer to see if or how the services change.
Q: What is the possibility of an appeal by the DOL, further litigation in Texas district courts in the absence of one, and the outlook for the separate Northern District of Texas case?
A: The parties filed a request for an extension to file a joint report on August 21 that indicated the DOL and Department of Justice had not yet decided whether to file an appeal of the stay. It is always possible, but an appeal of the stay seems unlikely. Instead, a decision on the merits at one or both district courts is more likely. Given the findings in the stay orders, the outcome is likely a rejection of the rulemaking. That decision on the merits is more likely to be appealed.
Q: What is the history of the “investment advice” definition, which has expanded and shrunk multiple times in the past two decades?
A: There have been several attempts to expand the definition of “investment advice” for retirement plans, with several periods in which the scope returned to the 1975 definition. The focus of the changes has shifted from capturing providers making valuation determinations to those that make rollover recommendations and those that receive rollovers.
Q: What will happen as the new DOL fiduciary rule, effective September 23, draws near?
A: The status quo will remain. Many who were skeptical that this regulation would go entirely into effect focused more on challenging the regulation than setting up compliance with it. Those anticipating needing to comply still learned lessons from the 2016 implementation. Jumping straight into full compliance mode in a public-facing way, confused when the regulations were vacated and programs changed. Businesses are wary of experiencing the same resource drain and having their consumers experience whiplash.
Related: DOL fiduciary rule lawsuit expands, as 2 financial trade groups want it halted too
Q: Will the new fiduciary rule head to the Supreme Court and likely be struck down?
A: While I am not a Supreme Court scholar, it seems somewhat unlikely that the Supreme Court would take up an Administrative Procedure Act case so soon after the Loper Bright decision, significantly if the 5th Circuit limits the agency’s regulatory scope and without a circuit split. That would likely give the 5th Circuit the last word unless new cases are filed separately.