FACC to Appeal Court Decision on DOL Rollover Rule

Kinkeade’s ruling, in the U.S. District Court for the Northern District of Texas, weighed in on a February 2022 case against the Labor Department brought by FACC, which challenged the department's 2020 guidance on who is considered a fiduciary when giving rollover advice. FACC is a group representing independent insurance agents who sell annuities and other income planning products.

While FACC "is not surprised by the decision because it merely follows the Magistrate Judge’s [June 2023] recommendations, it is disappointed," the group said.

In that June 2023 decision in the U.S. District Court for the Northern District of Texas, the magistrate did find, as requested by the FACC, "that a rollover recommendation could not be connected with subsequent advice to an IRA in order to satisfy the prong of the regulation’s 5-part test for fiduciary status. Thus, a one-time rollover recommendation to a participant would not, absent other factors, be fiduciary advice," said Fred Reish, partner at Faegre Drinker. "That was the main question and a victory for the FACC plaintiffs."

However, Reish continued in an email, "the magistrate found that the DOL’s interpretation of other parts of the 5-part test were not illegal, that is, they were valid interpretations, which somewhat expands the definition of 'fiduciary' recommendations."

For example, "the DOL interpreted the part of the 5-part test that requires a 'mutual understanding' between the participant/IRA owner and the advisor/insurance agent fairly broadly," Reish said. "The FACC wanted a more narrow interpretation. The magistrate determined that the DOL’s interpretation was permissible."

Brad Campbell of Faegre Drinker told ThinkAdvisor on Monday that Kinkeade’s ruling "reaffirmed the status quo," as the decision "largely mirrored" a Florida court's ruling in another case, and that neither decision regarding PTE 2020-02 "materially affects the 2024 Fiduciary Rule."

A Mixed Bag

FACC, the group said Thursday, "has always assumed this matter would ultimately need to get resolved by the Fifth Circuit," adding that the judge's decision is "a mixed bag because the decision guts an essential element" of the Labor Department's 2020 guidance on rollover advice "and thus demonstrates the guidance is flawed."

Kinkeade, the group said, "is wrong in failing to see that other aspects of the [2020 rollover] guidance are inconsistent with the Fifth Circuit decision."

FACC notes that Judge Kinkeade "merely adopted the recommendations of the Magistrate Judge without further rationale but the rationale provided by the recommendations was seriously flawed and should not be allowed to stand."

FACC went on to state that it "remains hopeful the current administration will see the 2020 guidance is wrong and work towards settlement that results in voiding the guidance."

"Like the 2024 fiduciary rule, the 2020 guidance is just another version of DOL’s prior efforts to turn everyday insurance agents into ERISA fiduciaries," the group said.

The group said it "will continue to urge DOL to restore the historical fiduciary definition based on the 5-part test that existed before the Obama administration began down this ill-conceived path."

"The time has come to resolve these issues after 15 years of legal wrangling so government resources can be better focused on helping and encouraging Americans to save for retirement," the group added.

What's Next?

Two Texas courts have stopped the fiduciary rule from taking effect. The two cases have been consolidated in the U.S. Court of Appeals for the 5th Circuit, which will rule only on the halt, not the regulation itself, Campbell said. The DOL has until mid-August to respond. Labor has received three 60-day delays since February to get organized.