Top ERISA attorneys agreed on the best course of action for advisors and home office personnel in the wake of this week’s seismic fiduciary ruling in Florida.
In a lawsuit brought by the American Securities Association (ASA), a district court judge vacated parts of the Department of Labor’s (DOL) rollover guidance, finding it overstepped its authority with certain aspects of its Frequently Asked Questions (FAQs) regarding Prohibited Transaction Exemption 2020-02.
The plaintiffs asked for summary judgments on four separate counts. Only one prevailed yet received most of the attention. It involved FAQ 7, the point at which advice to roll over assets from an employee benefit plan to an IRA is considered to be on a “regular basis.” 
It’s one of the prongs of the DOL’s high-profile five-part test under its 1975 regulation that determines who is considered an investment advice fiduciary. This “regular basis” prong broadly describes a “relationship where advice is recurring, non-sporadic, and expected to continue,” according to the department.
The ASA argued FAQ 7 unlawfully enlarged “the circumstances in which an investment advisor is subject to fiduciary duties.” The court agreed, and financial professionals are wondering what’s next. What should advisors and home office personnel do in the wake of the ruling?
Short answer—not much, at least not now.
“At a high level of how it immediately impacts advisors and home offices, my advice is not to take any action today,” Bonnie Treichel, Chief Solutions Officer with Endeavor Retirement, said. “Yes, a ruling was handed down from a judge as it relates to one of the FAQs. It’s an important FAQ because it’s the regular basis prong.”
The reason to stay the course is that she believes the DOL will appeal the ruling or introduce a new regulation in the future, something seen on its agenda for some time.
Jason Roberts of the Pension Resource Institute and Retirement Law Group agreed, noting that the DOL is drafting a proposal under the Administrative Procedures Act, which he said was the court’s rationale for vacating FAQ 7. It would be the “proper place” to clarify the investment advice defintion.
“We already believe that this new proposal will shore up all that [ambiguity over who is a fiduciary] in the way it was supposed to be done in the first place,” he argued. “For that reason, we would say, don’t take your foot off the gas. The notion that documenting—as well as prudently and thoroughly evaluating— rollovers is something I don’t see firms retreating from their current position based on this particular ruling, and I wouldn’t advise them to do so.”
Some of those downplaying the ruling’s potential impact note that it’s one court in one state and a district court at that. Groom Law Group Principal David Levine suggested a measured approach.
“You can’t say this is across the country, this is one court, but I do think some people will look at it and evaluate their strategies,” Levine explained. “Maybe you don’t change your process today, but the question is if it does get appealed, or if the DOL loses, or if they don’t appeal or it evolves, what does it mean? Don’t go rushing in with a million resources. Just consider what it could mean to your processes as you go forward from a competitive standpoint. That’s the thing.”
While it might not be significant from an immediacy standpoint, it’s a big deal anytime a government agency is found to have acted arbitrarily and capriciously, Roberts said, because federal agencies are granted considerable deference that gives them the authority to promulgate rules.
“In that sense, it’s a big deal,” he added. “As a practical matter, though, we already expected a tightening of the definition of investment advice in the DOL’s yet-to-be-published proposal. That will go through a notice and comment period. Certainly, the DOL has a lot of examples of what not to do, so I anticipate that will be a solid rulemaking process. Long story short, I don’t see the standard going away.”
The consensus from all three attorneys was the same seemingly evergreen advice—act responsibly and don’t overreact.
“I don’t think I would suddenly halt my existing procedures and framework for PTE compliance because if it gets appealed and you’ve got a large team, you don’t want to change your procedures and then reverse them again,” Treichel said. “These are big ships to turn around. It will not harm anyone if you continue doing what’s in the best interest of an investor. If you’ve already got those procedures in place, which you should, given last February's effective date, I would continue down that path.”
Levine emphasized that the DOL, including Lisa Gomez, Assistant Secretary for the Employee Benefits Security Administration, has been clear in a desire to “return to fiduciary.”
“Until recently, there were different views, and they haven’t sent anything to OMB yet, but this might kickstart them to say, ‘Let’s actually do the rule at this point rather than exemptions,” he concluded. “However, we’re already two years into the Biden administration, and given the court reactions to some of their decisions and approaches lately, it’ll be interesting.”
