DOL’s fiduciary rollover guidance is not ‘dead’: ERISA attorney

By Melanie Waddell

February 16, 2023 at 3:08 p.m

“I would not change my policies and procedures right now,” says ERISA attorney Brad Campbell.

The recent Florida federal court ruling, which overturned the Labor Department’s policy of declaring rollover advice as fiduciary advice, does not mean Labor’s interpretation is “dead,” said ERISA attorney Brad Campbell of Faegre Drinker on Thursday. “That’s not what happens.”

What happened, Campbell said Thursday on Faegre Drinker’s Inside the Beltway webcast, is that the court said, “They want to vacate it, but they have to do all the procedural stuff … and then DOL has an opportunity to appeal.” We haven’t gone through that process yet.”

Another pending case

Also, Campbell, a former head of Labor’s Employee Benefits Security Administration, said “we don’t know what’s going to happen” in the pending Texas case.

This case was filed by the Federation of Americans for Consumer Choice in the United States District Court for the Northern District of Texas in February 2022.

Phyllis Borzi, former head of EBSA, told ThinkAdvisor in a previous interview that this district is “the focal point for all forum-shopping financial services and business lawsuits against the DOL and other cabinet agencies.”

The FACC lawsuit challenges the Trump-era Labor Prohibited Transaction Exemption (PTE, 2020-02), Improving Investment Advice for Workers & Retirees, which specified stricter rollover rules and was issued on February 16, 2022 came into effect.

Advisory firms are now required to provide “pension investors” with the specific reasons why an extension or transfer of their retirement benefit is in the best interest of the pension investor. The rollover requirements went into effect on July 1st.

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The federation alleges that “Labour has ‘revived and repackaged’ the substance of its 2016 repealed rule in direct violation of the 5th Circuit decision” by allowing PTE 2020-02 to go into effect, Borzi said.

The association’s case “requests the court to set aside PTE 2020-02 in its entirety and prohibit DOL from implementing or enforcing it in any way.”

What the Florida Judgment Means

ASA’s case was about the “regular basis” of ERISA’s five-part test of when investment advice is fiduciary advice.

As law firm Dechert explains in a recent tender, the “regular basis” that the ASA decision addresses is to “clear” with the court.[ing] the policy … which interprets “regular” to include IRA rollovers.”

In the Florida case, Campbell said in the webcast, the American Securities Association “has requested that several different aspects of the DOL policies be repealed; The court did agree on the one key, but it’s a big deal.

The court said that “DOL’s reinterpretation of ‘regular basis’ is inconsistent with the law. … The court says ERISA applies to investment advice for a plan and to investment advice as they did [DOL] Defined for this “normal baseline” test, it would include post-rollover counseling for the individual once in their IRA.”

However, the court said “effectively an IRA is not a plan and therefore it cannot be said to be on a regular basis because if the advice was given once when the assets were in the plan and then several times thereafter when the assets now in existence were an IRA.”

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This “key portion of DOL’s guidance related to rollover recommendations is being eliminated,” Campbell said.

Bottom line, Campbell said, given the Florida court decision, “I wouldn’t change my policies and procedures right now, but I would keep an eye on what’s going on.”

Fred Reish, partner at Faegre Drinker, agreed on the webcast that he “would be pretty cautious about saying, ‘Hey, this is all over’ on that basis. [Florida] court verdict. This is just the first step in a long process.”

In addition, Reish reiterated that Labor is working on a new fiduciary definition rule, which he says could be sent to the Office of Management and Budget in April or May.