DOL Stops Defending Biden-Era Fiduciary Rule

The Department of Labor withdrew its defense of the previous presidential administration’s fiduciary rule that would have brought retirement investment advice under fiduciary obligation.

After seeking three separate delays this year, beginning in February, the DOL’s Employee Benefits Security Administration withdrew from the case in an unopposed motion to dismiss, according to a Monday court filing in the U.S. 5th Circuit Court of Appeals.

Specifically, the DOL has withdrawn its appeal regarding the stay of the effective date established by the U.S. District Courts for the Northern and Eastern Districts of Texas. Initially, the DOL had appealed this stay to the U.S. 5th Circuit Court of Appeals following the two district court rulings that blocked the enforcement of the fiduciary rule.

The DOL indicated in September that it intended to replace the fiduciary rule, formally known as the Retirement Security Rule, as part of its regulatory priorities.

The latest filing concludes a lengthy legal battle that started soon after the fiduciary rule was finalized in 2024 under former President Joe Biden, expanding the definition of a fiduciary for retirement investors, including rollovers from 401(k) and other defined contribution accounts.

The 2024 fiduciary rule would have imposed a fiduciary standard on retirement investment advice, which includes guidance on individual retirement account rollovers and advising small employer plans. The rule was initially set to take effect in September 2024 but faced significant legal challenges from various industry firms and member organizations.

In July 2024, the U.S. District Court for the Northern District of Texas issued a nationwide stay on the rule in American Council of Life Insurers v. DOL. One day earlier, the U.S. District Court for the Eastern District of Texas had also granted a stay to the plaintiffs in a separate case, Federation of Americans for Consumer Choice Inc. et al. v. DOL et al.

The cases were consolidated and appealed to the 5th Circuit, which hears appeals to federal cases in Louisiana, Mississippi and Texas, and the parties agreed in Monday’s court filing that the appeal should be abandoned.

The groups opposed to the rule had challenged it on the grounds of the Administrative Procedure Act, arguing that it exceeded the DOL’s regulatory authority under the Employee Retirement Income Security Act. Opponents claimed that this overreach mirrored the shortcomings of a previous version of the rule, during the administration of former President Barack Obama, which was vacated by the 5th Circuit in 2018.

In defense of extending fiduciary oversight to retirement plan investors rollovers, Biden’s DOL asserted that in the retirement security rule, it had addressed the Obama-era flaws by emphasizing the principle of trust and confidence in providing one-time retirement rollover advice, which the regulation aimed to govern.

However, federal courts in Texas disagreed in their July 2024 rulings, stating that the DOL did not sufficiently differentiate its new fiduciary rule from the prior version.

Compounding the challenges, the U.S. Supreme Court’s July 2024 decision Loper Bright Enterprises v. Raimondo further bolstered the regulation’s opponents. Loper Bright abolished the judicial deference doctrine that previously required courts to interpret laws in favor of federal agency interpretations.

The decision to abandon the defense of the fiduciary rule follows similar efforts from the DOL under President Donald Trump to undo rules issued by the Biden administration.

The agency has announced plans to repeal and rewrite a Biden-era rule regarding the use of environmental, social and governance considerations when selecting retirement plan investments. It is also set to release guidance intended to facilitate the inclusion of more alternative assets, such as private equity and cryptocurrencies, in workers’ retirement accounts.

The Biden administration did not restrict access to alternatives but had issued now-rescinded guidance cautioning “plan fiduciaries to exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.”