Will the Department of Labor take another shot at a fiduciary rule?

The Department of Labor’s recent decision to abandon attempts to extend fiduciary duty and recommit to the longstanding “five-part test” for retirement advice is welcome news for the insurance industry.

But is the flirtation with fiduciary dead for good this time?

“From our perspective, the landscape is clear,” said Eric Marhoun, vice president and senior counsel at Nassau Financial Group.

In April, the DOL reinstated the 2005 Deseret Letter, confirming that recommending a one-time rollover from an employer-sponsored plan to an individual retirement account generally does not make a financial professional a fiduciary. The move restores the historical 1975 "five-part test" for determining fiduciary status.

“The landscape for the industry that existed for those 40 years has been reinstated,” Marhoun said.

Long back-and-forth

Efforts to extend fiduciary duty, for example, to the sale of annuities date to at least 2010. Republican administrations generally opposed the idea, while their Democratic counterparts pushed for tougher rules.

That back-and-forth could continue if a Democrat wins the White House in 2028, conceded Kent A. Mason, partner at the law firm Davis & Harman.

“I would not be surprised if a Democratic administration tried again,” Mason said. “I think if they tried anything similar to what they did in 2016 or 2024, they'll get invalidated again.”

The industry’s fiduciary legal fight began with the Obama administration’s 2016 fiduciary rule, which broadened the definition of fiduciary to cover many brokers and insurance agents working with IRAs and 401(k)s. Supporters said the rule would protect investors from conflicted advice, while opponents argued it would raise compliance costs and reduce access to financial guidance for smaller investors.

The rule faced major legal challenges from insurers, broker-dealers and trade groups. In 2018, the 5th U.S. Circuit Court of Appeals struck down the rule, ruling the DOL had exceeded its authority.

The Biden administration renewed the effort in 2024 with a new Retirement Security Rule aimed at updating fiduciary standards for modern retirement markets. Industry groups again sued, arguing the revised rule was too similar to the overturned 2016 version. Federal courts blocked major portions of the rule later in 2024.

Extending fiduciary status is counterintuitive, Mason explained. Instead of protecting the most vulnerable consumers, it left them largely on their own. Multiple studies revealed that the cost of compliance causes advice providers to reconsider their markets.

“Under the 2024 rule, or the 2016 rule,” he added, “the financial institutions generally said to themselves, ‘Look, the cost of providing advice and the risks involved are so prohibitive that we will do it for the large accounts, but we just can't afford to do it for the small and mid-sized accounts.’”

The legislation angle

There has been discussion within the industry of a lobbying push for legislation to codify the five-part test and the Deseret Letter interpretation or otherwise remove the fiduciary threat, Mason said. The problem is getting to 60 votes in the Senate.

Republican proponents would have to “make enormous compromises” to get Democrats on board, he noted. With favorable court decisions on the fiduciary issue, conceding ground seems ill-advised, Mason said.

“Right now, we're in a good place,” Mason said. “And I'm not saying a good place from an industry perspective. I'm saying a good place for individuals. Because what they did in 2016 backfired. It hurt low- and middle-income individuals.”

While administrations vacillated between fiduciary rules, the National Association of Insurance Commissioners passed a best-interest model law that has been adopted, in some form, in all 50 states.

The industry is very supportive of best interest rules, said Mason and Marhoun, and the hope is that it becomes the accepted standard.

“We certainly hope that things are settled,” Mason said. “The amount of cost and disruption and harm to participants from the last 16 years has been very unfortunate.”

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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.