The U.S. Department of Labor (DOL) has issued the Retirement Security Rule. This final rule expands the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA) to include a much broader range of situations involving investment advice. ERISA fiduciaries must legally act in the best interests of the retirement plan participants they advise. The final rule now requires a larger group of financial services professionals to either comply with ERISA or meet a condition for an exemption. In addition to this rule, the DOL’s final regulations contain three sets of changes to ERISA-prohibited transaction exemptions.
Definition of an Investment Advice Fiduciary
The DOL’s final rule is designed to better protect retirement plan participants who rely on investment professionals to make decisions about their retirement savings based on the investment advice that they receive. Under the new rule, a financial services provider qualifies as an investment advice fiduciary under ERISA if:
- The provider makes an investment recommendation to a retirement investor;
- The provider receives a fee or commission for giving the advice; and
- The financial services provider holds itself out as a trusted advisor by:
- Specifically stating its fiduciary status under Title I or II of ERISA; or
- Making the recommendation in a way that a reasonable investor would assume that a trusted advisor is giving them an individual recommendation that is in their best interest.
The final rule also closes a loophole in the old rule for financial services providers offering one-time advice to investors. Financial services providers will qualify as fiduciaries under ERISA when they recommend to investors that they roll over assets from an employer retirement plan to an IRA, so long as they meet every element of the investment advice fiduciary definition. The fiduciary duty also applies when a financial services provider advises about purchasing nonsecurities, such as index annuities, and advice about a 401(k) plan’s menu.
Closing this loophole will also bring many insurance agents within the definition of fiduciary under ERISA. The rule also clarifies that human resources professionals educating employees about 401(k) plans do not make them fiduciaries for ERISA.
Changes to the ERISA-Prohibited Transaction Exemptions
The changes to the ERISA-prohibited transaction exemptions included a modification to PTE 2020-02, which a substantial portion of the financial industry used when recommending rollovers. The final regulations also modify PTE 84-24, an exemption that relates to insurance agents. The third set of modifications affects various other ERISA-prohibited transaction exemptions that financial professionals use in giving investment advice.
Implementation of the Retirement Security Rule
DOL intends to implement the final changes outlined in the Retirement Security Rule over time. The rule goes into effect on September 23, 2024. At that point, individuals must acknowledge their fiduciary status and comply with certain standards outlined in the rule. However, the rule contains a one-year transition period for certain aspects of the transaction exemptions.
Response to the Retirement Security Rule
The Retirement Security Rule is narrower than the previous DOL rule that the U.S. Court of Appeals for the Fifth Circuit invalidated. Still, the U.S. Chamber of Commerce and various industry groups have been critical of and opposed the rule, calling for its delay and withdrawal throughout the rule issuance process. As a result, litigation challenging the final rule by one or more industry groups is likely to occur.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.
Hall Benefits Law, LLC
Latest posts by Hall Benefits Law, LLC (see all)
- Fifth Circuit Considers Arbitration Clause in ERISA Claim - March 20, 2026
