Compliance May 16, 2023

DOL Will Not Appeal 401(k) Rollover Rule, ASA Says

The trade group that sued the DOL says the regulator will not insist that rollover advice should be subject to ERISA.

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The Department of Labor has withdrawn its appeal of a February federal district court ruling that ensured 401(k) rollover recommendations would not be seen as fiduciary investment advice, according to the American Securities Association.

The ASA announced on Monday that the DOL has voluntarily dropped the appeal of a case the Washington, D.C.-based trade association of regional financial services firms brought against the regulator. The ASA sued the DOL in early 2022, challenging guidance under the Administrative Procedure Act that said an adviser’s initial retirement plan rollover recommendation would qualify as investment advice and be subject to fiduciary obligations under the Employee Retirement Income Security Act.

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“We are pleased the DOL dropped its appeal of the district court’s decision to strike down [the DOL’s] attempt to change existing rules about retirement advice without a formal rulemaking,” Chris Iacovella, president and CEO of the American Securities Association, said in a statement.

In February, Judge Virginia M. Hernandez Covington, of the U.S. District Court for the Middle District of Florida’s Tampa Division, ruled against the DOL’s Employee Benefits Security Administration in American Securities Association v. United States Department of Labor, et al. Covington ruled that EBSA’s guidance on rollovers was “arbitrary and capricious” in the agency’s interpretation of the five-part test used for determining when recommendations count as investment advice.

The DOL issued an appeal notice in April, according to court filings, but did not lay out arguments. There is no additional posting on the court docket for the case as of Tuesday, and the DOL did not immediately respond to a request for confirmation.

The DOL and EBSA are continuing to review the definition of a fiduciary and are working on new guidance that will “more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries,” according to the DOL’s regulatory agenda.

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