DOL Proposes Expansion of ERISA’s Fiduciary Rule to Include More Investment Advisors

The U.S. Department of Labor (DOL) has issued a proposed rule that would include subjecting more investment advisors to ERISA’s fiduciary rule, including its strict conflict of interest provisions. The proposed rule comes five years after the U.S. Court of Appeals for the Fifth Circuit struck down the DOL’s 2018 final rule defining who qualifies as an ERISA fiduciary.

According to the DOL, the purpose of the proposed rule is to ensure that investment professionals receive fair remuneration for their advice and properly place their clients before their commissions. The White House also commented on the rule, citing the need to protect individuals saving for retirement, crack down on “junk fees” in retirement plans, and prohibit investment advisors from offering biased advice due to conflicts of interest.

Among the major changes in the voluminous proposed rule are changes to the definition of an investment advice fiduciary under ERISA. This definition change is designed to encompass investment advice for individuals rolling over funds from workplace retirement plans to individual retirement accounts (IRAs).

The DOL also included three sets of amendments to the so-called “prohibited transaction exemptions” under ERISA in its proposed rule. Financial professionals use these exemptions to manage conflicts of interest when advising about retirement plan investments in exchange for a fee. The proposed changes impact the following exemptions:

  • PTE 2020-02, an exemption finalized during the Trump administration that the financial industry widely relies upon in recommending rollovers to clients;
  • PTE 84-24, an exemption for use by insurance agents; and
  • PTEs 75-1, 77-4, 80-83, 83-1, and 86-128, several other ERISA-prohibited transaction exemptions that financial professionals use in different investment advice situations.

The DOL’s proposed changes would trigger the application of a 1975 five-part test defining investment advice, triggering a fiduciary duty under ERISA. The DOL claims that the test and the changes outlined in the proposed rule will create a uniform fiduciary standard for retirement advisors.

The Biden administration first mentioned the proposed rule in a June 2021 regulatory agenda. Retirement industry trade groups began to push back in anticipation of heightened costs due to increased regulations from the rule after the DOL sent it to the Office of Management and Budget in September 2023. The Insured Retirement Institute quickly condemned the DOL’s proposed rule as a reiteration of a previously failed policy.

However, the Save Our Retirement coalition, which includes various union and investor advocacy groups such as the AARP and the AFL-CIO, immediately praised the proposed rule in a joint statement to the press. This coalition lauded the rule as “a major milestone” to ensure millions of Americans have access to a secure retirement.

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.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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