New DOL Fiduciary Rule challenged in court by SIFMA and FSI

In successive rulings issued on July 25 and 26, 2024, the District Courts of the Eastern and Northern Districts of Texas stayed the Department of Labor’s updated fiduciary rule, which was intended to apply the ERISA fiduciary standard to rollover advice provided to “retirement investors”, which would include ERISA plan participants, beneficiaries, IRA owners and IRA beneficiaries.   Under this updated and amended rule, rollover recommendations to “retirement investors” would be prohibited unless the adviser satisfied the Prohibited Transaction Exemption 2020-02 requirements.

Because of these courts’ rulings, investment advisers are no longer subject to the ERISA fiduciary standard when advising plan participants, beneficiaries, and IRA owners in connection with rollover advice.  Accordingly, advisers are no longer required to complete the prohibited transaction exemption forms provided in compliance with DOL’s PTE 2020-02.  Until these court rulings, many advisers continued to comply with the PTE 2020-02 requirements with respect to ERISA-to-IRA and IRA-to-IRA rollovers, because the validity of the rule was unclear.  

However, in complying with PTE 2020-02, advisers were explicitly acknowledging that they were “fiduciaries” under ERISA with respect to their rollover advice.  Now that the DOL fiduciary rule has been stayed by the Federal Courts, advisers should consider discontinuing using the disclosure forms required under PTE 2020-02.  Continued use of PTE 2020-02 disclosure forms will, as a matter of contract, subject advisers firm to the ERISA fiduciary rule that would not otherwise apply to rollover advice, possibly imposing on the adviser greater potential liability than is legally required.

Conclusion

As the DOL fiduciary rule is stayed by the court, and likely to be struck down permanently as inconsistent with the DOL’s statutory authority, advisers should carefully consider any continued use of the PTE 2020-02 disclosure forms.  The PTE 2020-02 disclosures require advisers to acknowledge in writing that they are subject to the ERISA fiduciary standard when advising clients on rollover transactions.  There is no longer a legal requirement to assume such liability, and doing so could unnecessarily impose potential ERISA sanctions on firms that continue to comply with the unenforceable rule. 

To learn more about these opinions and their implications, please see the resources section of our website.