Second Judge Strikes Down DOL Rollover Guidance

A second judge has ruled the Labor Department’s guidance that declared rollover advice fiduciary advice should be struck down.

The ruling is a victory for the Federation of Americans for Consumer Choice, an advocacy group representing independent insurance distributors.

In the U.S. District Court for the Northern District of Texas, Judge Rebecca Rutherford ruled on June 30 to vacate portions of Labor’s Prohibited Transaction Exemption 2020-02, Improving Investment Advice for Workers & Retirees, which establishes more stringent rollover rules.

Advisory firms are now required to provide “retirement investors” with the specific reasons why a rollover or transfer of their retirement money is in the best interest of the retirement investor.

According to the order, Rutherford said that the court should vacate the portions of the exemption’s text and preamble that consider the following to be fiduciary advice:

Review of a single rollover “can be the beginning of an ongoing advice relationship” to Title II plans;
inclusion of potential “future, ongoing relationships” to Title II plans; and
that “an ongoing advisory relationship spanning both the Title I Plan and the IRA satisfies the regular basis prong” of ERISA’s five-part test on when investment advice is fiduciary advice.

A federal court in Tampa, Florida, ruled in mid-February 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.”

Labor dismissed in mid-May its appeal of the Florida ruling.

FACC Case

In February 2022, the Federation filed its challenge to Labor’s PTE 2020-02 in the U.S. District Court for the Northern District of Texas.

The Federation alleged that “Labor has ‘resurrected and repackaged’ the substance of its vacated 2016 rule in direct violation of the 5th Circuit decision” by allowing PTE 2020-02 to take effect, Phyllis Borzi, former head of Labor’s Employee Benefits Security Administration, told ThinkAdvisor in a previous interview.