Trade group to appeal ‘mixed bag’ ruling on beleaguered fiduciary rule

The Federation of Americans for Consumer Choice will appeal a mixed ruling that keeps alive the Department of Labor's fleeting attempts to reinterpret fiduciary duty.

District Judge Ed Kinkeade accepted the 2023 findings and recommendations of a U.S. magistrate judge, who concluded that portions of the DOL’s guidance under Prohibited Transaction Exemption 2020-02 exceeded the agency’s authority and were "arbitrary and capricious."

Kinkeade's order vacated specific rollover-related provisions, including the rule allowing a single IRA rollover to be considered the start of an ongoing fiduciary relationship.

While the ruling strikes those components from PTE 2020‑02, Kinkeade did not dismiss the DOL’s entire rule. Other portions remain in effect. With its lawsuit, FACC hoped to strike the entire rule, following the Court of Appeals for the Fifth Circuit's decision to toss out a previous 2016 fiduciary rule.

"FACC views the decision as a mixed bag because the decision guts an essential element of the guidance and thus demonstrates the guidance is flawed. However, FACC respectfully submits the Judge is wrong in failing to see that other aspects of the guidance are inconsistent with the Fifth Circuit decision," said FACC CEO Kim O'Brien in a statement.

"FACC notes that Judge Kinkeade merely adopted the recommendations of the Magistrate Judge without further rationale but the rationale provided by the recommendations was seriously flawed and should not be allowed to stand."

A pair of challenges

The DOL's latest fiduciary expansion effort -- titled the Retirement Security Rule -- was crafted under the Biden administration to take effect in September 2024. Two lawsuits tied the rule up in two Texas courts, which granted stays in the summer of 2024.

In April, the Fifth Circuit granted the DOL 60 days to consider its stance on the latest version of the rule. Since the Trump administration took over, the DOL has not said if it will continue to appeal the lower-court rulings.

Plaintiffs in both lawsuits say that any DOL rule must adhere to precedents set by the Fifth Circuit ruling.

With that decision, a three-judge panel ruled that the 2016 rule strayed too far from the common-law definition of the term fiduciary, which hinges on the existence of a relationship of “trust and confidence” with the client. Agents who merely sell products to their clients do not have this relationship, the court concluded.

"FACC believes the time has come to resolve these issues after 15 years of legal wrangling so government resources can be better focused on helping and encouraging Americans to save for retirement," O'Brien said. "That is what really matters, which can be best achieved by respecting the multi-faceted financial service marketplace designed to provide consumers with choices in pursuing their financial security."

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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.