The DOL previously attempted to redefine an investment advice fiduciary in a 2016 rulemaking, which was ultimately invalidated by the U.S. Court of Appeals for the Fifth Circuit in 2018 as being beyond the DOL’s authority, with the Fifth Circuit finding that it was overbroad and applied to relationships that lacked “trust and confidence.”  Shortly following the DOL’s adoption of the 2024 Rule, on May 2, 2024, an insurance industry trade organization, along with five other insurance industry plaintiffs, filed suit in the U.S. District Court for the Eastern District of Texas, challenging the 2024 Rule.  Citing the Fifth Circuit precedent, the Eastern District Court concluded that the 2024 Rule, like the earlier 2016 rule, conflicts with ERISA in several ways.  First, the court found that the extension of fiduciary status to “one-time” advice, including advice related to roll-overs, would capture transactions that do not satisfy the “relationship[s] of trust and confidence” requirement contemplated by ERISA, noting that the 2024 Rule “fails for this reason alone.”  Second, the court found that 2024 Rule’s amended definition of an “investment advice fiduciary” conflicts with ERISA’s requirement that the fiduciary render “investment advice for a fee or other compensation,” noting that the amended definition captures arrangements where fees are paid either for “the recommended transaction or the provision of investment advice.”  The court stated that “ERISA requires that the fee be paid for investment advice, not for a mere recommendation on a financial product.”  Third, the court found that the 2024 Rule conflicts with ERISA by regulating IRA providers “in tandem with” Title I fiduciaries, thus “ignoring the distinction between [the] DOL’s regulatory authority under Title I, which is expansive, and Title II, which is limited.” 

In the second case, filed by various insurance trade groups, the U.S. District Court for the Northern District of Texas cited and fully agreed with the Eastern District Court’s analysis and reasoning, as outlined above, explaining how the 2024 Rule conflicts with ERISA and the Fifth Circuit precedent.  In staying the 2024 Rule, both District Courts found that plaintiffs were likely to succeed on the merits of their claims. 

The memorandum opinion of the U.S. District Court for the Eastern District of Texas was issued under the caption Federation of Americans for Consumer Choice, Inc., et al. v. United States Department of Labor, et al., No. 6:24-cv-163-JDK (E.D. Tex. 2024).  The memorandum opinion of the U.S. District Court for the Northern District of Texas was issued under the caption American Council of Life Insurers, et al. v. United States Department of Labor, et al., No. 4:24-cv-00482-O (N.D. Tex. 2024).

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