Federal Court Halts DOL’s Retirement Security Rule
A federal judge in Texas recently issued a temporary block on the U.S. Department of Labor’s (DOL) Retirement Security Rule, originally set to take effect on September 23. On Thursday, Judge Jeremy Kernodle of the U.S. District Court for the Eastern District of Texas halted the rule, which aimed to establish new standards for defining investment fiduciary advice regarding retirement plans and savings. The Federation of Americans for Consumer Choice Inc., representing independent insurance agents, filed a complaint seeking this injunction on May 2, citing concerns about the rule’s implications.
Legal Background and Rationale
The case, Federation of Americans for Consumer Choice Inc., et al. v. U.S. Department of Labor, et al., centered on the contention that the new fiduciary rule closely mirrored a proposal from the Obama administration. The U.S. 5th Circuit Court of Appeals struck down this previous proposal in 2018. Despite the DOL’s argument that the new rule accounted for the 2018 ruling, the plaintiffs argued otherwise. They maintained the revised rule still infringed upon the Employee Retirement Income Security Act (ERISA) by treating one-time investment recommendations as fiduciary actions.
Judge Kernodle agreed with the plaintiffs, noting in his opinion that the new rule mirrored the grounds covered by the 2018 proposal. He emphasized the ruling’s scope is national, impacting parties beyond those directly involved in the case. His decision mentioned that the rule conflicts with ERISA, especially concerning one-time recommendations for rolling over assets from an ERISA plan to an Individual Retirement Account (IRA).
Implications for the Financial and Insurance Industries
The ruling temporarily halts the fiduciary rule’s effective date and related amendments to Prohibited Transaction Exemption 84-24, which governs annuity sales commissions. This decision creates uncertainty for retirement plan sponsors and their advisers, who have been preparing to implement the rule’s changes.
Industry Reactions and Future Challenges
The insurance industry has actively opposed the Retirement Security Rule. Critics argue that the stricter fiduciary standards would raise operational costs for brokers and advisors, ultimately limiting access to financial advice for lower- to middle-income savers. Additionally, insurers contend that state regulations and the Securities and Exchange Commission’s Regulation Best Interest already govern annuity sales and investment advice.
However, many in the retirement and financial sectors, including organizations such as the AARP, the Certified Financial Planner Board of Standards, and Morningstar Inc., support the rule. They believe it strengthens fiduciary standards for retirement investment advice, promoting transparency and consumer protection.
Ongoing Legal and Legislative Developments
The DOL faces another legal challenge in the U.S. District Court for the Northern District of Texas, brought by nine insurance trade groups led by the American Council of Life Insurers. This case also references the 2018 5th Circuit decision and awaits a verdict.
Meanwhile, legislative actions could influence the rule’s future. The House Committee on Appropriations recently advanced a spending bill for the 2025 fiscal year that aims to cut the DOL’s budget, targeting the Retirement Security Rule among other priorities. Additionally, the House Education and Workforce Committee approved a bill to overturn the rule, indicating ongoing political debate surrounding its implementation.
As legal challenges and legislative efforts unfold, the fate of the DOL’s Retirement Security Rule remains uncertain, impacting stakeholders across the financial and insurance industries.
What Does This Mean for Plan Sponsors?
Savant Retirement Plan Services can help you decipher the complexities of the recent court ruling, develop strategies to help protect your plan, and manage ongoing compliance. To learn more, visit our website.
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PlanSponsor – DOL’s Retirement Security Rule Stayed Ahead of Effective Date
Patricia L. Hutchinson
Director of Retirement Plan Services
MBA