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The DOL Accepts a FAQ-Out and Rolls Over . . . for Now – Appeal of ASA v. DOL Is Abandoned

by | May 16, 2023 |

By Andrew Oringer

It was reported yesterday, on May 15, 2023, that the U.S. Department of Labor (the “DOL”) has abandoned its appeal in American Securities Association [“ASA”] v. U.S. Department of Labor, No. 8:22-cv-00330 (M.D. Fla. Feb. 13, 2023)ASA (along with the earlier case of Carfora v. TIAA, No. 1:21-cv-08384 (S.D.N.Y. Sept. 27, 2022), rejected a key DOL interpretation of its own fiduciary rules under the Employee Retirement Income Security Act of 1974, as amended (including the corresponding provisions of the U.S. tax code, “ERISA”). ASA has the potential to act as a major impediment to the DOL’s pursuit of a critical policy initiative relating to the regulation of rollover solicitations. We previously commented on the ASA case in an earlier Law Alert that can be found here.

Background – In General

For years, the DOL has devoted substantial time and effort to expanding the reach of the fiduciary rules.  The DOL, arguably dissatisfied with the existing regulatory definition of “investment advice” (the “Existing Rule”) as being too narrow and easy to avoid, had embarked on an effort to expand the scope of that definition and, by so doing, expanded the scope of who is a fiduciary for ERISA purposes.

A stated goal was to attempt to protect non-institutional individual (so-called “retail”) investors in participant-directed employee benefit plans that are subject to ERISA (“Plans”) and owners of individual retirement arrangements (“IRAs”) most of which are not subject to ERISA. It is noted that the DOL has interpretive authority regarding certain rules applicable to Plans and IRAs, but has enforcement authority only as to Plans and not as to non-ERISA IRAs.

The crowning accomplishment of this DOL endeavor may well have been the DOL’s proposal, and eventual finalization, of an amendment to the regulatory definition of “investment advice.”  The impact of the final amended fiduciary rule (the “Amended Fiduciary Rule”) was broad, and caused financial institutions to reexamine and revise their practices applicable to retirement accounts, and sometimes even to non-retirement accounts, in an effort to maintain uniform practices across their customer base.

But the best laid plans sometimes don’t ultimately work out, and in 2018 the U.S. Court of Appeals for the Fifth Circuit vacated the Amended Fiduciary Rule, together with a number of new and amended administrative exemptions, as being “arbitrary and capricious.” When the Trump administration declined to appeal the decision, the vacatur became final, and the regulatory definition of “investment advice” returned to the status quo of the Existing Rule.

One of the things the DOL addressed in the wake of the demise of the Amended Fiduciary Rule was the elimination of a particularly significant new (and now vacated) exemption (the “Best Interest Contract Exemption”). While the Amended Fiduciary Rule was generally adverse to the interests of financial institutions, the Best Interest Contract Exemption (or “BIC Exemption”), where applicable, permitted financial institutions to act as fiduciaries under the Amended Fiduciary Rule (and receive otherwise potentially prohibited compensation) without running afoul of certain ERISA prohibitions. Thus, when the Amended Fiduciary Rule and the related exemptions were vacated, financial institutions lost the potential protection of the BIC Exemption.

The DOL realized that the loss or the BIC Exemption could make it more difficult for financial institutions to continue to serve the retail retirement market where those institutions (i) might be at risk of being considered to be fiduciaries even under the Existing Fiduciary Rule; or (ii) might have wanted affirmatively to assert fiduciary status, for example to gain an advantage in the market.

Somewhat perversely, the elimination of the BIC Exemption could therefore have discouraged financial institutions from proceeding as fiduciaries. The DOL was aware of the conundrum, and provided for transition relief while it considered how to address the issue.

PTCE 2020-02

Eventually, the DOL proceeded to propose and adopt what became Prohibited Transaction Class Exemption (“PTCE”) 2020-02, which provided a path for financial institutions to provide fiduciary services to the retail retirement market and still charge compensation under desirable structures that may not be permitted under ERISA absent an exemption. In that regard, PTCE 2020-02 is in the nature of relief.

However, in the preambles to the proposed and final versions of what became PTCE 2020-02, the DOL reinterpreted important aspects of the five-part test governing what is “investment advice” under the Existing Fiduciary Rule. The DOL followed this reinterpretation with FAQ-7 of its April 2021 Frequently Asked Questions regarding these matters (the “2021 FAQ”).

Critically, among other aspects of the DOL’s reinterpretation, the DOL reasoned that advice given during the process of soliciting rollovers from the Plan accounts of new customers could be advice rendered on a “regular basis” if there would be continuing advice rendered with respect to the IRA receiving the rollover, and therefore could be fiduciary advice subjecting the rollover solicitation, and the soliciting institution, to ERISA. This approach differed from the approach taken over the course of proposing and finalizing the Amended Fiduciary Rule, where the DOL acknowledged that a change in the underlying regulation was generally necessary in order for the “investment advice” regulation to reach such rollover solicitations.


Arguably, a central part of the DOL’s initiative to expand the reach of ERISA’s fiduciary rules has been the purported expansion of the definition of “investment advice” to certain rollover solicitations that were previously outside of ERISA’s reach. With the Amended Fiduciary Rule, the DOL changed the underlying regulatory language in order to reach its desired result. In the wake of the demise of the Amended Fiduciary Rule, the DOL proceeded to assert a new interpretation of the Existing Fiduciary Rule that could have allowed it to get to the same ultimate result.

The DOL’s new approach caused a number of financial institutions to rework their rollover-solicitation procedures so as to support the position that the procedures fit within the conditions of PTCE 2020-02. However, it had never been clear that the DOL’s reinterpretation of the five-part test of the Existing Fiduciary Rule is correct or sustainable.

Indeed, the ASA court rejected the DOL’s approach in FAQ-7 as “arbitrary and capricious.” Now, with the DOL’s apparent abandonment of its appeal of ASA, the DOL’s reinterpretation of the Existing Fiduciary Rule appears to be effectively vacated.

For the moment, if ASA stands, as it appears it will, the case will be a blow to what was arguably a centerpiece of the DOL’s efforts to regulate rollover solicitations. It remains to be seen, however, what the DOL’s next steps will be.  In this regard, there are strong indications that the DOL may be considering yet another change to the Existing Fiduciary Rule. Such a change, if implemented, could provide a path for the DOL to address rollover solicitations, notwithstanding any invalidity of FAQ-7 and its rollover-related interpretation of the Existing Fiduciary Rule that is currently in place. Indeed, if the DOL really is abandoning its appeal of ASA and, by extension, its critical interpretation of FAQ-7, it is possible that the DOL feels that a regulatory solution is the best way forward. For now, however, one can only speculate as to what lies ahead.

Thus, even if ASA stands without further appeal, the situation currently continues to be an uncertain one, and financial institutions, some of which have already undertaken substantial efforts to revamp their procedures applicable to rollover solicitations of new customers, may wish to watch the situation with great care. Those institutions that have accepted or embraced fiduciary status, and wish to continue to do so, could be positioned to stay the course, regardless of how the DOL proceeds from here with respect to the Existing Fiduciary Rule. For those institutions that wish to avoid fiduciary status based on the contention that the DOL’s analysis is invalid, the final chapter in this NeverEnding Story of the Amended Fiduciary Rule and its progeny has not yet been written – if it will ever be written at all.

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We will be following how these matters progress, and expect to be providing updates on particularly important developments. If you have any questions about ASA, or about the Existing Fiduciary Rule or ERISA’s fiduciary rules generally, please do not hesitate to contact us.