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June 2024

What’s The Status of Rollovers and Transfers After The DOL’s New Fiduciary Rule?

There is a good chance the DOL’s new fiduciary rule will never go into effect on September 23, 2024 or any later date. If so, your current IRA procedures for rollovers and transfers may continue to be used.

Two lawsuits commenced in May of 2024 challenge the DOL’s new fiduciary rule because the regulation is unconstitutional and the DOL has not been given the authority to do what it has done.

In prior discussion of this fiduciary topic we have admitted our bias. We are not a fan of the DOL when it comes to the DOL wanting to expand its regulatory authority over IRAs. The DOL in the fiduciary regulation has given itself great authority to regulate IRAs. ERISA was never designed or written to give such power to the DOL regarding IRAs.
The DOL gave itself the authority to impose Title I ERISA penalties on an IRA custodian/trustee who fails to meet the new fiduciary rules even though ERISA expressly takes a different approach. Except for the right to administer prohibited transactions with respect to IRAs and to render some administrative services regarding SEP-IRA plans, SIMPLE-IRA plans and employer sponsored IRA plans, the DOL has limited authority to regulate IRAs. This is as it should be as IRAs are not normally related to an employer/employee relationship. Congress via ERISA has never given the DOL the express authority to regulate IRAs. If the laws need to be changed, Congress needs to act. There will have to be political compromises. The Democrats in Congress don't feel they have to make any compromises if the DOL does what the Democrats want done. The DOL did not compromise on very much in writing the new fiduciary regulation.

The purpose of this article is to provide basic information on two lawsuits filed against the DOL. There may well be many more cases filed against the DOL. There should be. If ever there was a case of over-reach by a governmental entity, this is it It will be interesting to see if the American Bankers Association or any state banking association commences a lawsuit. They should if they want to help their member banks.
Life insurance companies and agents sell annuity policies. There are special issues relating to annuities - those being sold to pension plan participants and IRA annuities. The insurance industry and the DOL are formidable foes. The insurance industry has strong lobbyists and many attorneys. Much stronger than the banking industry.
The first case was filed on May 2, 2024. It is Federation of Americans for Consumer Choice, Inc. et al v. United States Department of Labor (DOL).

The second case was filed on May 24, 2024. It is American Council of Life Insurers (ACLI) et al v. United States Department of Labor (DOL).

The Complaints set forth the following causes of action. The requested relief is that the final regulation and the amendments to PTE 84-24 are to be vacated totally and the DOL is to be permanently enjoined from taking any action to implement, apply or enforce the new rule.

Here are the causes of action for the first case.
A. The DOL has exceeded its authority under ERISA, the code, and the APA in promulgating the 2024 Fiduciary Rule and Amendments to PTE 84-24.
B. The 2024 Fiduciary Rule and Amendments to PTE 84-24 violate the APA because they are arbitrary, capricious, and irreconcilable with the text of ERISA and the code.
On 5/21/2024 FACC filed its motion for a preliminary injunction suspending the enforcement of the DOL’s fiduciary rule.
On 5/31/2024 the U.S. Chamber of Commerce filed its amicus brief.

Here are the causes of action (counts) for the second case.
Count 1. The rule’s expansion of fiduciary status is contrary to law and in excess of statutory jurisdiction.
Count 2. The rule is contrary to law and arbitrary and capricious because is unlawfully creates private rights of action under state law.
Count 3. The rule is arbitrary and capricious because it is the product of unreasoned decision making.
Count 4. The rule violates the first amendment as applied to truthful commercial speech by financial salespersons.
The relief sought:
a) Declare the Rule arbitrary, capricious, an abuse of discretion, and contrary to law under 5 U.S.C. § 706(2)(A); declare the Rule contrary to constitutional right under 5 U.S.C. § 706(2)(B); and declare the Rule promulgated in excess of statutory jurisdiction, authority, or limitations under 5 U.S.C. § 706(2)(C);
b) Set aside and vacate all components of the Rule in its entirety as non-severable;
c) Preliminarily and permanently enjoin the Department and all its officers, employees, and agents from implementing, applying, or enforcing the Rule;
d) Stay the effective date of the Rule under 5 U.S.C. § 705;
e) Award Plaintiffs their costs and reasonable attorney’s fees as appropriate; and
f) Grant such further and other relief as this Court deems just and proper.

We will keep you updated on the status of these two cases and any additional cases. We expect the district court to grant the motion for a preliminary injunction. It is scheduled to go into effect on September 23, 2024, but won’t if the preliminary injunction is granted.

The DOL wrote the rule so that the court could strike certain portions of the rule, but other parts would survive. We expect the court will vacate the entire rule. There are simply too many things wrong with the final rule. Presumably the case will be appealed to the Fifth Circuit Court of Appeals and then to the U. S. Supreme Court.

One will need to determine how PTE 2020-02 is affected if the fiduciary rule is vacated in its entirety. This will be discussed in a future newsletter article.