DOL Fiduciary Rule Halted by Texas Court

The plaintiffs, the ruling states, “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.”

DOL’s related amendments to Prohibited Transaction Exemption 84-24 “are also unreasonable and arbitrary and capricious,” the decision states.

The ruling “is very disappointing and I believe it was wrongly decided,” Micah Hauptman, director of investor protection for the Consumer Federation of America, told ThinkAdvisor Friday in an email. “Retirement savers need the protections of the rule and they are going to continue to suffer harm because implementation of the rule is stayed.”

FACC said Friday in a statement that “it is clear that Judge [Jeremy] Kernodle examined the issues carefully and found DOL’s new fiduciary rule to be irreconcilable with the Fifth Circuit decision [vacating the 2016 fiduciary rule] and with ERISA. FACC stands ready to ensure the rule is ultimately vacated and upheld as necessary through any appeals.”

‘Long Litigation Journey’

The court’s decision to stay the fiduciary rule and PTE 84-24 “is the beginning of a long litigation journey,” ERISA attorney Fred Reish, partner at Faegre Drinker in Los Angeles, added in another email.

“In all likelihood, the DOL will appeal that decision to the Fifth Circuit Court of Appeals. And all of this is before there is a decision on the merits. Regardless of the court’s decision on the validity of the regulation and the exemption — which should come in the next few months, the losing party will appeal that to the Fifth Circuit.”

Then, “regardless of the decision by a panel of the Fifth Circuit judges, a request will be made for an en banc hearing by all of the Fifth Circuit judges,” Reish continued. “And then the losing party will likely ask the Supreme Court to hear the case. Of course, this is a ‘best guess,’ but I believe it is a probable scenario.”