DOL’s Fiduciary Rule Struck Down by Fifth Circuit – Is the Rule Dead?

By Stephen J. Silverberg
New York Elder Law Attorney

A Department of Labor (DOL) rule intended to protect unsophisticated investors from brokers, dealers and insurance professionals who sell IRAs as part of employee benefits packages has been vacated by the Fifth Circuit Court of Appeals, overturning a Dallas district court that had supported its application. A recent article in Forbes, “Impact On IRAs From Appeals Court Striking Down Department Of Labor’s Fiduciary Rule,” explains what this means for the investment community and for employees.

The Fiduciary Rule is actually a group of seven rules that reinterpret the term “investment advice fiduciary” and redefine exemptions to provisions about fiduciaries under ERISA (Employee Retirement Income Security Act). ERISA was put into place originally to protect employee benefits from unscrupulous employers, including IRAs and disability insurance policies, among others.

The Obama administration wanted to put this rule into effect based on the apparent conflict of interest of a broker, dealer or insurance professional whose interest could conflict with the best interests and needs of employees.

From the start there had been tremendous push-back by the financial services industry on the DOL rule.  This lawsuit was brought by several industry groups that oppose the rule, including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute. In 2017, a Dallas district court upheld the DOL rule. On March 15, 2018, the industry conclusively won in their appeal.

The new Fiduciary rules offered retail IRA investors a higher level of financial advisory services. However, the Appeals Court ruled that the DOL overstepped its authority in applying the fiduciary rule to IRAs. The court said if it wanted to expand the DOL regulation, it must be authorized by ERISA.

In plain English, the appeals court said that just because the DOL sees this as a need to protect employees does not mean it may change the law. 

The DOL rule, circulated during the Obama years, has been partially applied but based on this ruling and the position of the current administration, it is not likely to survive.

About the Author
Stephen J. Silverberg is nationally recognized as a leader in the areas of estate planning, estate administration, asset preservation planning, and elder law. He is a past president of the prestigious National Academy of Elder Law Attorneys (NAELA), and a founding member and past president of the New York State chapter of NAELA.
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