Court order puts DOL fiduciary rule on ice

investmentnews.com:

The future of the DOL’s fiduciary rule became uncertain on Thursday, after a US district court judge ordered a stay on the controversial regulation.

In court documents, Judge Jeremy Kernodle stated that “the plaintiffs are likely to succeed on the merits of their claim that the 2024 fiduciary rule conflicts with ERISA’s text” and that they “would suffer irreparable harm in the absence of relief.”

The rule and its accompanying prohibited transaction exemptions, which were set to be phased in beginning in September, redefine investment advice and would make many brokers – particularly insurance agents – fiduciaries. The insurance industry has staunchly opposed the rule, as many one-time annuity sales made via rollovers from retirement plans would become fiduciary acts.

“The rule is not DOL’s first attempt to expand the meaning of fiduciary under ERISA. The Fifth Circuit vacated an earlier, similar rule because it ‘conflict[ed] with the plain text of [ERISA],’ was ‘inconsistent with the entirety of ERISA’s ‘fiduciary’ definition,’ and unreasonably treated numerous financial services providers ‘in tandem with ERISA employer-sponsored plan fiduciaries,’” Kernodle wrote. “The 2024 fiduciary rule suffers from many of the same problems.”

The stay raises questions about whether the rule will ever go into effect.

“The stay of the fiduciary regulation means that the DOL’s definition of one-time advice will not be effective this Sept. 23. As a result, the current regulation, with its five-part test, will continue in effect until the stay is lifted, and if the courts ultimately determine that the regulation exceeds the DOL’s authority, the new regulation will never come into effect,” said Fred Reish, partner at Faegre Drinker Biddle