In Focus: Federal Court in Dallas Rules in Favor of Fiduciary Rule, But Does It Matter?

The rule may be legal but the administration can still move to delay, revise or revoke it

Stephen Miller, CEBS By Stephen Miller, CEBS February 9, 2017
In Focus: Federal Court in Dallas Rules in Favor of Fiduciary Rule, But Does It Matter?

A federal district court in Dallas on Feb. 8 denied a request to vacate the Department of Labor's (DOL's) controversial fiduciary rule on financial advice given to retirement plan sponsors and participants, promulgated by the Obama administration. The rule had been challenged by the U.S. Chamber of Commerce, the Securities Industry Financial Markets Association and a consortium of trade groups.

This was the third district court to decide in favor of the fiduciary rule's legality in lawsuits brought by industry groups, following rulings last year in Kansas and in the District of Columbia, which suggests that higher courts also may be unlikely to overturn the regulation—a development that would have kept the rule in place if the Trump administration were favorably disposed toward it.

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While these rulings hold the fiduciary rule, which is set to take effect on April 10, to be legal, they do not prevent President Donald Trump's administration from deciding to take steps to delay, revise or revoke the rule, through new rulemaking, as a matter of policy. But some legal observers think the court's ruling could make repeal more difficult.

Nonetheless, the DOL is preparing to delay the application date of the fiduciary rule for 180 days, Reuters reported on Feb. 9. The DOL sent two documents to the Office of Management and Budget for approval. One document is a proposed rule that delays the regulation's effective date—now April 10—for 180 days. That proposal has a comment period of just 15 days. The potential delay is merely pending and cannot be made official until the comment period ends. The second document would start another round of public comment on the rule itself, which requires financial advisers to put their clients' best interests first when advising them about 401(k) and similar defined contribution retirement plans. After the end of this comment period, the DOL could propose revising or rescinding the fiduciary rule.

President Trump on Feb. 3 ordered the DOL to conduct a broad review of the fiduciary rule, which requires that investment advice provided to sponsors and participants in 401(k)-type retirement plans to be in plan participants' best interest (i.e., without regard to commissions and fees), and that retirement plan investment advisors follow the fiduciary standard under the Employee Retirement Income Security Act (ERISA). If not, the advisors—and the plan sponsors who contract with them—could be held liable in participant lawsuits and face ERISA violation penalties.

On Feb. 8, before the district court's ruling, the Justice Department had requested that the court stop consideration of the lawsuit.

Here's a roundup of coverage of recent developments.

U.S. Court Upholds Obama-Era Retirement Advice Rule

A U.S. federal judge on Feb. 8 upheld an Obama-era rule designed to avoid conflicts of interests by retirement plan advisors, in a possible setback for Trump's efforts to scale back government regulation. The decision by Chief Judge Barbara Lynn for the U.S. District Court for the Northern District of Texas is a defeat for the business and financial services industry groups that had sought to overturn it. And while it is not expected to stop the Labor Department from delaying the rule's April 10 compliance deadline while it conducts the review, some legal experts say it could make it more difficult for the Labor Department to find a way to justify scrapping or significantly altering the rule.

Judge Rules Against Fiduciary Foes, Puts Onus Back on Trump

Trump has instructed the Labor Department to conduct a review of the rule and rescind it if they find it conflicts with some of his policy goals. But Judge Lynn's ruling heartened fiduciary advocates, who have loudly criticized Trump's moves to possibly roll back the regulation. Despite this setback, the trade groups remained defiant, calling Trump's recent directive to review the rule a welcome development. Meanwhile, a number of top executives at financial services firms say they plan on retaining most of the changes they have been implementing in advance of April 10, when the rule goes into effect.

DOL 3, Fiduciary Rule Opponents 0

It remains to be seen whether plaintiffs in the Texas case, or the other two cases (Kansas and the District of Columbia), will pursue an appeal, particularly since the Trump administration has sent a clear signal that it has designs on at least making some adjustments to the rule as it stands, and may well pursue a delay in the application date as the Labor Department undertakes a new review of the impact of the regulation. This result, coupled with President Trump's Feb. 3 administrative memorandum to the DOL, will doubtless add some additional intrigue to the Senate Health, Education, Labor and Pensions Committee's confirmation hearing for Labor Secretary nominee Andrew Puzder—now rescheduled for Feb. 16.
(ASPPA News)

Trump's Directive Could Begin to Undo the DOL's Fiduciary Rule

An executive action by Trump calls for a federal review, followed by possible steps to modify or repeal, the DOL's looming fiduciary rule—which affects investment advice given to retirement plan sponsors and participants. Trump's executive memorandum does not, by itself, repeal, revise or delay the fiduciary rule. Instead, the DOL will have to determine whether and how any delay should be implemented. Employers and their benefits committees should reach out to their advisors/consultants and confirm whether they intend to proceed with implementing changes to comply with the rule, and continue to monitor developments in this area from a fiduciary risk perspective.
(SHRM Online)

Fiduciary Rule Delay Could Face Bumpy Path Forward

Instead of delaying the rule's April 10 applicability date—as many in the industry had expected—Trump's presidential memorandum directs the DOL to re-examine the fiduciary rule's effect on retirement savers and revise or rescind the rule accordingly. Even so, a delay may be in the cards. Acting Labor Secretary Ed Hugler responded to Trump's memorandum by saying that the DOL will "consider its legal options to delay the applicability date" as it complies with Trump's directives. Such a delay may be easier said than done, however. A temporary delay on implementation would either need to go through a formal rulemaking process, including a notice and comment period, or proceed under the "good cause" exception to the Administrative Procedure Act.
(Bloomberg BNA)

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

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