DOL fiduciary future murky as Fifth Circuit tosses appeal

The Department of Labor fiduciary rule is again on the ropes after the Fifth Circuit Court of Appeals dismissed the government’s appeal Friday.

The appeal was a holdover from the Biden administration, and the government withdrew it earlier in the week.

The appeal concerned only the lower-court stay of the Sept. 23, 2024, effective date of the Biden-era Retirement Security Rule, the latest attempt to extend a fiduciary standard. Underlying litigation remains active, with the consolidated cases returned to their respective federal district courts.

But while an expected development from the friendly Trump administration, the news was greeted with cheers from financial services trade groups.

“The DOL’s fiduciary-only regulation resurrects a failed 2016 rule that prevented millions of consumers from accessing much-needed retirement financial guidance,” reads a joint statement from the American Council of Life Insurers, National Association of Insurance and Financial Advisors, Insured Retirement Institute, Finseca and National Association for Fixed Annuities.

“Allowing the stay of the effective date to remain in place provides retirement savers with continued relief from these harmful consequences as the court considers the substantial legal issues we have raised regarding this ill-advised regulation.”

Kim O'Brien, CEO of the Federation of Americans for Consumer Choice, a plaintiff in one of the lawsuits, sent the following statement to InsuranceNewsNet:

"FACC remains hopeful the new leadership at DOL will take the necessary steps to reverse the damaging fiduciary rules and guidance championed in the past largely by the Obama and Biden administrations. The withdrawal of the appeal may be a step in that direction but that remains to be seen.

"FACC believes strongly that the DOL regulations and interpretations in place prior to the original 2016 fiduciary rule were consistent with ERISA and that the proper vehicle for regulation of insurance agents is through the NAIC model regulation. Its adoption in all 50 states is the best protection for consumers and it is time for the DOL to give up its decade-long pursuit to create an unnecessary layer of regulation that in the long run would only harm consumers."

PTE 2020-02 remains

The court ruling leaves the Prohibited Transaction Exemption 2020-02 and its many requirements in effect for the time being. PTE 2020-02 was introduced during the first Trump administration.

PTE 2020-02 allows investment advice fiduciaries to receive compensation for riskless principal transactions, covered principal transactions and rollover advice – transactions that would otherwise be prohibited. The exemption requires investment advice fiduciaries to act in the best interest of their clients and to prevent conflict of interests.

The DOL is expected to issue a revised fiduciary rule in or about May 2026, as noted in the department’s regulatory agenda.

That agenda item confused Brad Campbell, former assistant secretary of labor under President George W. Bush. During a recent webinar, Campbell called the notice of an impending of a final rule "odd" since the Retirement Security Rule is already final.

"The question is, will the rule survive, or will it be rescinded or modified? So why would you need a final rule to do that?" Campbell asked. "You would need a proposal to change it, and it wasn't a proposal on the agenda. So there's still some real confusion, I think, as to what the intentions of the Trump administration are."

A decade-long DOL effort

Since 2015, the DOL has made multiple efforts to expand the definition of “fiduciary” under Employee Retirement Income Security Act of 1974, aiming to require that financial professionals who give retirement advice — including brokers, agents and insurance sellers — put clients’ best interests first.

In April 2016, the DOL finalized a broad fiduciary rule set to apply in 2017, but that rule was vacated in 2018 by a federal appeals court, which said the agency had exceeded its authority.

In April 2024, under a new administration, the DOL issued another rule — dubbed the Retirement Security Rule — again expanding the fiduciary definition to include many more retirement-investment advisors and amending prohibited-transaction exemptions.

The rule was slated to take effect in September 2024. However, legal challenges quickly followed. In July 2024, a federal judge issued a nationwide stay, blocking implementation while the lawsuit proceeds — meaning the expanded fiduciary obligations are on hold for now.

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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.