Courts Create More Fiduciary Rule Uncertainty

Last week, two federal appellate courts issued conflicting rulings regarding the validity of the Department of Labor’s (DOL) “fiduciary rule” regulations that partially went into effect last year. The fiduciary rule regulations extend ERISA’s fiduciary standards to persons who provide investment advice to (i) retirement plan participants, (ii) IRA owners, and (iii) HSA owners. For more information on the regulations, please see our prior HRBenefitsAuthority, dated April 14, 2016.

Tenth Circuit Decision. The U.S. Court of Appeals for the Tenth Circuit rejected an insurance agency’s challenge to the fiduciary rule’s validity. The Tenth Circuit held that the fiduciary rule regulations were permitted under the Employment Retirement Income Security Act of 1974 (ERISA), and the DOL acted reasonably in creating the regulations.

Fifth Circuit Decision. Two days after the Tenth Circuit’s decision, the U.S. Court of Appeals for the Fifth Circuit reached the opposite conclusion. This challenge to the fiduciary rule’s validity was brought by the Chamber of Commerce and financial and securities industry groups. The Fifth Circuit held that the DOL exceeded its authority under ERISA and acted arbitrarily and capriciously in creating the fiduciary rule regulations. The Fifth Circuit vacated the DOL’s fiduciary rule regulations in their entirety.

Status of the Conflict. The insurance agency could appeal the Tenth Circuit’s decision to the U.S. Supreme Court or seek en banc review by the Tenth Circuit. Similarly, the DOL could appeal the Fifth Circuit’s decision to the U.S. Supreme Court or seek en banc review by the Fifth Circuit to resolve the conflicting decisions.

Current Status of the Fiduciary Rule.

For now, the regulations are nominally valid throughout the U.S. other than in the states covered by the Fifth Circuit (i.e., Texas, Louisiana and Mississippi).
However, the DOL has informally indicated that, pending further review, it will not enforce the fiduciary rule regulations anywhere within the U.S.
In addition, the DOL is also currently re-examining the fiduciary rule in light of President Trump’s February 3, 2017 directive. For more information on the President’s directive, please see our prior HRBenefitsAuthority, dated February 6, 2017.

Contact Information. For more information, please contact Don Mazursky (404.888.8840), David Putnal (404.888.8836), Toby Walls (404.888.8870), Teri King (404.888.8847), Angela Roberts (404.888.8822), or Alex Smith (404.888.8839).