A panel of federal judges today vacated the Department of Labor’s fiduciary rule in its entirety, overturning a lower court ruling. Two of the three judges on the Fifth Circuit Court of Appeals panel formed the majority in the case, which was brought by a coalition of financial and business trade groups in 2016, shortly after the Obama administration finalized the rule.
The fiduciary rule greatly expanded the definition of “fiduciary” under the Employee Retirement Income Security Act and the Internal Revenue Code. The rule required banks and other financial institutions to reassess whether and how they will continue to market and sell their retirement products and services to employee benefit plans and to individual retirement accounts.
However, Judges Edith Jones and Edith Brown Clement found that the rule’s new definition of fiduciary conflicts with ERISA. They also ruled that DOL did not meet the “reasonableness” tests required under so-called Chevron deference, under which courts may defer to reasonable agency interpretations of statutes, and under the Administrative Procedures Act, which governs agency rulemaking.
It was unclear whether DOL would appeal the ruling. In 2017, Secretary of Labor Alex Acosta declined to delay the overall rule from taking effect that year, but he did delay the applicability of key exemptions under the rule until 2019 to give covered institutions more time to comply. The American Bankers Association has long advocated for delayed implementation and revisions to ensure it does not negatively affect the services available to bank customers. For more information, contact ABA’s Tim Keehan.