The Department of Labor’s (“DOL”) conflict of interest rule, informally coined the “fiduciary rule,” sparked much debate when the regulations were proposed in 2015, and finalized in 2016, to expand the definition of fiduciary under the Employee Retirement Income Security Act of 1974 (“ERISA”). However, the fiduciary rule was continuously challenged in the courts, and appears to have met its final fate at the hands of the Fifth Circuit nearly 2 years later.
Following several delays, the fiduciary rule took partial effect on June 9, 2017, with certain other provisions set to take effect July 1, 2019. However, in March 2018 we saw two nearly back-to-back decisions involving the fiduciary rule. Perhaps most notable, in Chamber of Commerce of the United States of America v. U.S. Department of Labor, the Fifth Circuit vacated the fiduciary rule in its entirety, with the three judge panel ruling 2-1. Following this decision, the DOL issued Field Assistance Bulletin (FAB) 2018-02, which extended its temporary enforcement policy until further notice.
Many key players in the financial industry waited as the April 30 deadline to petition the Fifth Circuit for a rehearing, and the June 13 deadline to petition the United States Supreme Court to hear the case came and went, with no action from the DOL. Consequently, the Fifth Circuit issued its mandate vacating the fiduciary rule on June 21, 2018 in a two-page cover memo and final judgment which contained two key elements: (i) it stated that the case was argued by counsel on appeal and the judgment of the District Court was reversed, vacating the fiduciary rule in toto, and (ii) it ordered the DOL to “pay to appellants the costs on appeal”.
After expending a large number of resources to attempt to come into compliance with the fiduciary rule, many practitioners are left wondering whether the old “5-part test” from 1975 will be resurrected, and what that means for those who have already been operating under the new rule for nearly one year. It is possible that the DOL may update FAB 2018-02; however, until then it is recommended practitioners seek the advice of counsel and other professionals as needed when navigating through issues affected by the demise of the fiduciary rule.