A Texas court on Thursday stayed a Department of Labor final rule that expands fiduciary status to nearly all financial professionals, ruling that the plaintiffs in a lawsuit seeking to overturn the rule are likely to succeed on the merits.
Under the rule finalized in April, a bank or other financial institution or representative assisting customers with a one-time rollover transaction likely will be deemed a “fiduciary.” One-time annuity transactions also are captured under the rule. The Biden administration pushed for adoption of the rule, saying it would ensure that advisers are not steering clients to products and fees that make advisers money but may not be the best choice for savers. But in a lawsuit filed in the U.S. District Court for Eastern Texas, insurance groups argued the rule conflicts with the Employee Retirement Income Security Act by imposing fiduciary status on “any insurance agent who merely complies with state insurance laws when dealing with an ERISA plan member or owner of an [IRA].”
District Judge Jeremy Kernodle granted the plaintiff’s request for a nationwide stay of the rule while the courts weigh the merits of the lawsuit.
“Plaintiffs are likely to succeed on the merits of their claim because the 2024 fiduciary rule conflicts with ERISA in several ways, including by treating as fiduciaries those who engage in onetime recommendations to roll over assets from an ERISA plan to an IRA,” Kernodle ruled.
Outside the courts, the American Bankers Association and 12 associations in May urged lawmakers to support Congressional Review Act resolutions to overturn the rule. The groups said the rule poses a direct threat to the financial security of millions of America’s workers and retirees, with a disproportionate impact on low- and middle-income workers.
