On June 30, a Texas magistrate judge recommended that the U.S. District Court for the Northern District of Texas vacate those portions of the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) 2020 fiduciary rule sub-regulatory guidance which allows a financial advisor’s fiduciary status to turn on advice given in the context of a rollover to an individual retirement account.

The current fiduciary rule guidance “fails to properly distinguish between employer-sponsored retirement plans and individual retirement savings vehicles, which are treated differently under ERISA,” said Magistrate Judge Rebecca Rutherford. She added that the 2020 rule also conflicts with decades-old DOL rules “requiring a certain level of ongoing contact before a professional will be treated as a fiduciary under the statute.”

Magistrate Judge Rutherford made clear that her recommendation is narrow in scope, applicable only to those portions of the guidance “related to the relationships that may be considered when determining fiduciary status.”

Prospects: The recommendation can be accepted, rejected, or modified by the district court judge to whom the case has been assigned in the Northern District of Texas or by the full district court, if an en banc ruling is requested by either party. EBSA has met multiple setbacks in court in its attempt to broaden fiduciary status, both in the employer-sponsored plan context and in individual retirement savings situations. According to DOL’s spring regulatory agenda, EBSA is considering yet another revision of its fiduciary rule to be issued in August, but the effort appears to be stalled, in part due to the ongoing controversy over who the new Secretary of Labor will be, and partially due to the agency’s struggle to broaden its conflict-of-interest rules in a way that will pass judicial muster.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Michael Hedge – Senior Director – Government Relations, at mhedge@naifa.org.