Did the 5th Circuit Drive a Stake Through the Fiduciary Rule’s Heart?

By John Iekel • March 28, 2018 • 0 Comments
In a March 15 decision, the U.S Court of Appeals for the 5th Circuit vacated the Department of Labor’s (DOL) fiduciary rule. But did that ruling really kill the rule? In “Flashpoint: Did the 5th Circuit Kill the DOL Fiduciary Rules?” the Ferenczy Benefits Law Center provides an analysis of the ruling and its effects in question-and-answer format.

What Are the Legal Implications?

There is debate, the blog notes, concerning how broadly the 5th Circuit’s decision in Chamber of Commerce et.al. v. U.S. Dept. of Labor applies. Does it apply just in the states included in the 5th Circuit — Louisiana, Mississippi and Texas — or across the United States? That may be unclear, but at the very least it certainly does mean that the rule cannot be enforced in the 5th Circuit.

There now is a split among the circuit courts regarding the rule — the most recent to uphold the rule being the 10th Circuit. This, the blog notes, is a circumstance that often results in the U.S. Supreme Court hearing an appeal; it argues that the March 15 ruling “sets up the likelihood” that the high court will ultimately have “the ‘final word’ legally on the fiduciary rule.”

What Happens in the Short Term?

Possibly not much, the blog suggests. It notes that not only is the rule unenforceable in the 5th Circuit, the Trump administration has been “decidedly lukewarm” on the rule since day one. For good measure, in the wake of the 5th Circuit ruling the DOL has said that it will not be enforcing the rule for the time being. Nonetheless, the authors suggest, “most entities” have “made significant compliance efforts” and they consider it “unlikely” that anyone will reverse course and fully return to practices they followed before the rule, “at least until the legal effect of the 5th Circuit decision is more settled.”

What’s Next?

There are four possible ways the DOL could respond, Ferenczy says:

1. Ask for an en banc hearing by the full 5th Circuit
2. Appeal the 5th Circuit decision to the Supreme Court
3. Wait to see if the plaintiffs in the 10th Circuit decision appeal to the Supreme Court
4. Begin modifying or revoking the rule

Another possibility, the blog suggests, is that Congress could intervene and pass legislation that would modify or revoke the rule.

What Should One Do?

The blog suggests that one may consider putting new actions to comply with the rule on hold until there are further developments, but that one can avoid “any jeopardy” by continuing to follow any procedures that already have been modified in compliance with the rule.

The blog includes a caveat concerning rollover advice. Before the rule, the authors note, there was no exemption from the rules concerning self-dealing prohibited transactions. But with the rule: (1) everyone that gives rollover advice is considered a fiduciary; and (2) there is an exemption from the self-dealing rules for “level fee” advice. If the rule is overturned, they argue, “‘strangers’ to the plan who give rollover advice will go back to being non-fiduciaries,” and “the exemption that protected plan fiduciaries will be the proverbial baby out with the bath water.”