A Florida district court vacated the Department of Labor's (DOL) 2021 interpretation that fiduciary investment advice includes advice to roll over assets from an employer-sponsored benefit plan to an individual retirement account in some circumstances. In an order issued on February 13 in American Securities Ass'n v. Department of Labor (No. 8:22-cv-00330) (M.D. Fla. Feb. 13, 2023), the court rejected DOL's position that an investment advisor may satisfy the requirement under the 1975 five-part regulatory test that they provide advice "on a regular basis to the plan" when giving investment rollover advice when those services are at "the beginning of an intended future ongoing relationship" between the individual and the investment advice provider. In setting aside that interpretation as arbitrary, capricious, an abuse of discretion, and contrary to law, the district court concluded that DOL's interpretation of the "on a regular basis to a plan" regulatory text, published as part of a set of Frequency Asked Questions (FAQs) in 2021, "impermissibly unmoors the focus of the inquiry away from a specific ERISA plan, rendering it inconsistent with the statute and previous guidance." The decision was not a total loss for DOL, however, as the court upheld other interpretive guidance in the FAQs, agreeing with DOL that its guidance concerning the documentation needed to disclose the reasons that a rollover recommendation is in the retirement investor's best interest, in compliance with Prohibited Transaction Exemption (PTE) 2020-02, was "a procedurally proper interpretive rule."

Following this decision, the 1975 regulation and PTE 2020-02 remain in effect, as does DOL's interpretive guidance on the documentation requirements in the PTE. However, first-time investment rollover advisory services are, for now, not covered under the ERISA's fiduciary umbrella absent some court-ordered stay of the decision pending an appeal. The parties have 30 days from the decision to appeal. 

Last month, DOL reiterated its intent to revisit rulemaking on the investment advice fiduciary definition in the coming year. Does the agency have the bandwidth to do so with so many competing ERISA projects and priorities brought on by SECURE 2.0 and by the mental health parity initiative, including rulemaking and the imminent mental health parity report to Congress? Stay tuned.

For more information, please contact:

Joanne Roskey, jroskey@milchev.com, 202-626-5847
 

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