Will Courts Crush DOL's New Fiduciary Rule Soon? Don't Count on It.

FACC Suit

The FACC lawsuit isn't "particularly strong," Phyllis Borzi, former head of Labor's Employee Benefits Security Administration and architect of the 2016 fiduciary rule, told me in a recent email.

Rather, Borzi said she found FACC's suit "long on rhetoric and short on facts. It just seemed to be asserting in the form of a legal complaint, its testimony and press release on the rule with virtually no supporting data. In fact, some of these assertions were simply untrue. One that immediately caught my eye was their misstatement of the DOL's authority to define investment advice to include advice regarding IRAs."

Said Borzi: "Mysteriously, they claim that 'the only role granted to the DOL with respect to IRAs is to define 'accounting, technical and trade terms' and grant PTE exemptions."

Another argument in the FACC case that the final fiduicary rule was "promulgated in such a rushed fashion as to violate the Administrative Procedure Act (APA) is equally unsupported by the facts," Borzi maintained.

"Nowhere is it written that the agency's rejection of the regulated community's never-ending requests for extensions of time must be granted and to fail to grant them violates the APA," Borzi said. "In fact, a regulation on a topic that has been studied, analyzed and continually modified to address legitimate industry concerns over a 13-year period can hardly be described as 'rushed.'"

On the whole, the FACC complaint "simply described the 5th Circuit decision [striking down the 2016 fiduciary rule] and then claimed the DOL ignored it, which can easily be contradicted by any fair reading" of Labor's 2024 fiduciary rule, Borzi said.

Micah Hauptman, director of investor protection for the Consumer Federation of America, said in a recent email that the FACC lawsuit and plaintiffs' arguments "are deeply cynical. The plaintiffs make mutually inconsistent characterizations of their activities before different audiences, based on whichever characterization suits them at the time. They characterize themselves as 'trusted advisors' who provide advice when it suits them; they characterize themselves as salespeople no different than car dealers when it suits them. I hope the court sees through this nonsense."

Effective Dates

As Reish explained, the final DOL rule includes three parts. The first is the final fiduciary regulation defining fiduciary investment advice.

Beginning Sept. 23, "one-time recommendations can be fiduciary advice," Reish said. This is the "single biggest change because it means a whole bunch of people are going to be fiduciaries who were not previously fiduciaries when giving advice to plans, participants and IRAs."

The second and third part of the rule are the prohibited transaction exemptions 2020-02 on rollover advice and 84-24 on annuities, which can only be used by independent insurance agents.

DOL has created two effective dates for the PTEs: "Sept. 23, but only a couple of the provisions are required to be effective — the impartial conduct standards and a fiduicary acknowledgement in writing given to the retirement investor," Reish explained.

The "initial parts" of PTE 84-24 are also effective on Sept. 23, but for both PTEs, "the rest of requirements don't become effective until Sept. 23, 2025 — a full year later," Reish said.