Fiduciary Rule Saga: What’s Ahead for the Labor Department?

Will the Labor Department challenge the appeals court ruling that struck down the fiduciary rule?

The DOL hasn’t given a direct answer on whether it will seek review from the U.S. Supreme Court. However, the department was quick to say that it won’t enforce, for now, the Obama-era rule that aims to regulate the advice given to retirement savers.

In a 2-1 decision March 15, the U.S. Court of Appeals for the Fifth Circuit vacated the controversial rule, holding that the rule exceeded the regulatory authority the DOL has under the Employee Retirement Income Security Act.

It’s not the first Obama-era Labor Department rule to get shut down by a federal court. Last August, a federal district judge in Texas shot down the DOL’s overtime rule, which would have made some 4 million workers nearly eligible for overtime pay. The judge held that the DOL exceeded its authority by issuing the overtime rule.

Five days after the ruling, the DOL asked the Fifth Circuit—which was reviewing another challenge to the overtime rule—to dismiss that appeal. In November, the DOL appealed the district court ruling and filed a motion to freeze the case in an effort to buy time for the agency to issue a new rule.

Could There Be a Review?

The Fifth Circuit’s decision is a total rebuke of the fiduciary rule, Andrew Oringer, a partner at Dechert LLP, told Bloomberg Law March 16. Oringer advises employers sponsoring retirement plans. It remains to be seen just what the DOL will do, Oringer said.

It’s possible that the DOL will use this as an opportunity to act to narrow or revoke the existing rule, he said. The decision could open the floodgates in a way that doesn’t bode well for the future of the rule, Oringer said.

It’s possible the agency will choose to not appeal the ruling, especially given the hostility to the rule that some in the Trump administration have shown, Oringer said.

This week’s decision is “another blow for an otherwise extraordinary rule, but the fight isn’t over,” Stephen W. Hall, Legal Director and Securities Specialties at Better Markets, told Bloomberg Law March 16. Better Markets is a nonprofit that focuses on promoting public interest in financial markets and advocates for financial reform in Wall Street. It has supported the DOL rule.

There are reasons to believe the DOL won’t appeal the decision, but they should, Hall said. The opinion is deeply flawed, it’s in the best interest of the American people to challenge the decision and it would be consistent with Secretary Alexander Acosta’s position last year that there was no legal justification for delaying the core provisions of the rule, he added.

The Fifth Circuit decision is a complete victory for the plaintiffs, Wilmer Hale attorney David Ogden said during a press briefing March 16. The decision recognizes the significant impact the rule has had in the industry, he said. Ogden represented the National Association of Insurance and Financial Advisors, one of the groups that challenged the fiduciary rule in the Fifth Circuit.

The effect of the Fifth Circuit ruling is national, which means that the rule isn’t in effect across the country, he added.