DOL Fiduciary Rollover Guidance Struck Down by Florida Court

What You Need to Know

The American Securities Association challenged Labor’s declaration that rollover advice was fiduciary advice.
Consumer advocates say the case was wrongly decided.
The Labor Department will likely appeal the decision and could release a new proposed regulation in the next few months, ERISA lawyer Fred Reish says.

A federal court in Tampa, Florida, on Monday struck down the Labor Department’s guidance that declared rollover advice fiduciary advice.

The Florida court ruled that Labor’s interpretation of the five-part test setting out who qualifies as a fiduciary under the Employee Retirement Income Security Act was “arbitrary and capricious.”

The case was brought last February by the American Securities Association in the Middle District of Florida challenging what ASA said was “Labor’s attempt to change existing retirement rules without going through a notice-and-comment rulemaking as is required under the Administrative Procedure Act.”

Chris Iacovella, ASA’s CEO, said in a statement that the group ”is pleased the court recognized the DOL operated outside the scope of its legal authority and vacated its unlawful policymaking through guidance.”

ASA’s case challenged guidance promulgated by Labor interpreting its Prohibited Transaction Exemption 2020-02, issued on Dec. 18, 2020. In the preamble to the 2020 Exemption, the Department stated the notice “sets forth the Department’s final interpretation of when advice to roll over Plan assets to an IRA will be considered fiduciary investment advice” under Title I of ERISA and the tax code.

In April 2021, Labor released a set of frequently asked questions stating that a one-time recommendation to roll retirement assets from a plan to an individual retirement account constituted fiduciary advice under ERISA.

The ruling states that “before a rollover occurs, a professional who gives rollover advice does so with respect to an ERISA-governed plan. However, after the rollover, any future advice will be with respect to a new non-ERISA plan, such as an IRA that contains new assets from the rollover.”

The professional’s one-time rollover advice, the ruling continues, “is thus the last advice that he or she makes to the specific plan. So, while an offer to provide future advice may, as the Department suggests, be the beginning of a relationship, that relationship is inherently divorced from the ERISA-governed plan. Because any provision of future advice occurs at a time when the assets are no longer plan assets, it is not captured by the ‘regular basis’ analysis.”