DOL’s ‘retirement security rule’ runs into obstacles

The U.S. Department of Labor’s (DOL’s) “retirement security rule” (RIN 1210-AC02), which was scheduled to take effect this past September but has been temporarily blocked by the courts, faces doubtful prospects because of court challenges and the change in presidential administration.

The court actions, led by insurance industry trade groups, allege that DOL exceeded its authority in issuing the consumer protection regulation, which would broadly subject the financial services industry to new duties intended to protect retirement investors from receiving bad or self-interested investment advice.

Besides the legal challenges, the November election has cast doubt on the regulation’s prospects because the incoming presidential administration might try to reverse it.

Court orders blocking the new rule

In July 2024, two federal courts in Texas, the Eastern District and the Northern District, issued orders pausing the effective date of the retirement security rule after finding that industry trade groups were likely to prevail on the merits of their claims that the DOL lacked authority to issue the April 2024 regulation.

The court orders blocking the retirement security rule from taking effect are currently on appeal to the Fifth Circuit (Federation of Americans for Consumer Choice, Inc. v. U.S. Dept. of Labor, No. 24-40637 (5th Cir., docketed Sept. 26, 2024)).

In that appeal, the U.S. Justice Department (DOJ) (which filed the appeal) submitted its appellate brief on Dec. 20 arguing that the stay orders should be lifted. But the DOJ might shift its position and decide not to continue to defend the DOL’s regulation once President-elect Donald Trump’s administration comes into office, observers have noted.

If the appeal does move forward, a potential obstacle the DOL regulation will face is the demise of the Chevron doctrine. In June 2024, the U.S. Supreme Court nullified the long-standing judicial deference doctrine, which required courts to defer to administrative agencies’ reasonable interpretations of ambiguous statutes (see Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024)).

Notably, the Eastern District of Texas’s ruling imposing a stay on the retirement security rule highlighted the Supreme Court’s overruling of the Chevron doctrine, stating, “A court should no longer defer to an agency’s interpretation of a statute but should decide for itself ‘whether the law means what the agency says’ [quoting Loper Bright].”

Background on the retirement security rule

The DOL regulation would widen the circumstances in which a financial services provider qualifies as an “investment advice fiduciary” under the Employee Retirement Income Security Act (ERISA) and thus owes duties of prudence and loyalty to retirement investors.

DOL Deputy Assistant Secretary Timothy Hauser explained to the JofA in January 2024 that the retirement security rule might subject some CPA financial planners to new requirements when they deal with retirement investors.

“This is not the regulation of CPAs per se,” Hauser said. But “if the person really regularly makes investment recommendations, and if they do it in circumstances that indicate they’re acting in the customer’s best interest, they would have some additional obligations.”

The AICPA had recommended in a comment letter that the DOL’s new rules protecting retirement investors follow the AICPA Statement on Standards in Personal Financial Planning Services, which is part of the AICPA’s Code of Professional Conduct, but the DOL did not adopt that approach.

— Dave Strausfeld, J.D., is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at David.Strausfeld@aicpa-cima.com.