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July 10, 2023 at 04:48 PM
A second judge has ruled the Labor Department’s guidance that declared rollover advice fiduciary advice should be struck down.
The ruling is a victory for the Federation of Americans for Consumer Choice, an advocacy group representing independent insurance distributors.
In the U.S. District Court for the Northern District of Texas, Judge Rebecca Rutherford ruled on June 30 to vacate portions of Labor’s Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees, which establishes more stringent rollover rules.
Advisory firms are now required to provide “retirement investors” with the specific reasons why a rollover or transfer of their retirement money is in the best interest of the retirement investor.
According to the order, Rutherford said that the court should vacate the portions of the exemption’s text and preamble that consider the following to be fiduciary advice:
- Review of a single rollover “can be the beginning of an ongoing advice relationship” to Title II plans;
- inclusion of potential “future, ongoing relationships” to Title II plans; and
- that “an ongoing advisory relationship spanning both the Title I Plan and the IRA satisfies the regular basis prong” of ERISA’s five-part test on when investment advice is fiduciary advice.
A federal court in Tampa, Florida, ruled in mid-February that Labor’s interpretation of the five-part test setting out who qualifies as a fiduciary under the Employee Retirement Income Security Act was “arbitrary and capricious.”
Labor dismissed in mid-May its appeal of the Florida ruling.
Kim O’Brien, FACC’s CEO, told ThinkAdvisor Monday in an email that the group is “pleased the Magistrate Judge is recommending that District Judge Kinkeade vacate portions of DOL’s overreaching reinterpretation of the five-part test to the extent it intermixes IRAs with employer ERISA plans to determine who is a fiduciary.”
To the extent “others suggest these rulings somehow do not matter because DOL will be issuing new rules on rollovers, we think that misses the point.” O’Brien continued.
The recommendation in the FACC case, consistent with the Florida case brought by the American Securities Association, “makes clear there is a line between Title I employer plans and Title II IRAs which DOL cannot cross under ERISA which eliminates or strictly narrows DOL’s ability to regulate rollovers through some kind of fiduciary rule. “
FACC Case
In February 2022, the Federation filed its challenge to Labor’s PTE 2020-02 in the U.S. District Court for the Northern District of Texas.
