DOL drops appeal of court decision tossing out portion of rollover reg

By John Hilton

The Department of Labor likely signaled its future focus by withdrawing an appeal of a February decision tossing out a portion of its regulation on rollover recommendations.

Monday, the Department of Justice voluntarily dismissed its appeal of the ruling favoring the American Securities Association in its lawsuit against the DOL in the Middle District of Florida.

Judge Virginia M. Hernandez Covington sided with the ASA in striking down a portion of guidance the DOL issued in 2021 that expanded the definition of a retirement plan fiduciary. The judge ruled that a portion of the department’s frequently-asked-questions guidance illegally widened its regulatory lane, and failed to comply with the agency’s own regulations.

"We are pleased the DOL dropped its appeal of the district court's decision to strike down its attempt to change existing rules about retirement advice without a formal rulemaking,” said Chris Iacovella, president and CEO of the ASA. “The district court correctly held the DOL’s guidance was arbitrary and capricious and had no basis in law."

The guidance was issued as part of the Trump administration's investment advice rule that took effect in February 2022. Included in the rule was a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the "five-part test" to determine what constitutes investment advice.

A forthcoming fiduciary rule

DOL officials could not be reached and have provided little comment on the Trump administration rule since it took effect. Meanwhile, the department continues to work on a redefinition of "fiduciary."

That project has been continually delayed over the past year, but withdrawing the appeal could be an indication of DOL's future priorities.

Appearing last week at the Employee Benefit Research Institute’s 2023 Spring Policy Forum, Lisa Gomez, assistant secretary for the Employee Benefits Security Administration, told attendees that a new fiduciary rule is right at the top of the department's priorities.

A fiduciary rule published during the Obama administration was tossed out by the Fifth Circuit Court of Appeals, so DOL regulators are likely taking extra time to craft rules that are sure to end up in court again.

Speaking during a webinar Thursday, before the DOL pulled its appeal, Brad Campbell, partner at Faegre Drinker Biddle & Reath, said the department is determined to better regulate the sale of retirement products using rollover dollars.

Time running short

But the DOL is running out of time to complete all the steps required to get a fiduciary rule on the books, Campbell added.

"It takes time to propose a regulation, get comments on it, consider the comments, send the regulation you finalized back to the White House, have them approve it, then publish it, then have it go into effect," he noted. "There's less than two years effectively left in the current term of the Biden administration."

The ASA lawsuit was the second filed against the DOL investment advice rule. The Federation of Americans for Consumer Choice, joined by a number of independent insurance agents and agencies, sued the Labor Department in Dallas federal court. That case is ongoing.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.