For Individuals,For Plan Sponsors,Retirement Savings Plans,Custom

Department of Labor (DOL) Fiduciary Rule Vacated by Fifth Circuit Court of Appeals

July 6, 2018

The Fifth Circuit Court of Appeals issued a ruling on March 15, 2018, in the Chamber of Commerce v. U.S. Department of Labor case, vacating the DOL's Fiduciary Rule. The court ruled that broker-dealers and their associated persons cannot be held to a best interest fiduciary standard under ERISA when making securities recommendations. Subsequent motions filed by AARP and the attorneys general of three states (California, New York, and Oregon) to intervene in the Fifth Circuit litigation and to obtain a rehearing by the full Fifth Circuit were denied and the DOL has chosen not to seek rehearing of the decision or petition the Supreme Court for review. On June 21, 2018, the Fifth Circuit issued an order which officially nullified or canceled the DOL's Fiduciary Rule, effectively removing it from the law.

While the DOL's Fiduciary Rule did not generally affect providers of non-ERISA plans, it did apply to IRA rollovers and likely would have been followed as a matter of best practice by providers for governmental retirement plans. Because of the Court's ruling, plan sponsors, service providers, investment advisers, and others that work with qualified plans and IRAs probably will reevaluate various practices. Although the Fifth Circuit opinion does not address this directly, it appears that the law would revert back to the law that was in effect prior to the regulation issued in April 2016. Other regulators, however, continue to look carefully at the standard of care for those that provide investment recommendations, including the SEC and various states. The industry is also watching several states that have passed their own fiduciary rules which vary in their application and have yet to be tested.

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