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DOL Fiduciary Rule Vacated.

Posted by James M. Carlson
Mar 01 2018

On March 15, 2018, the U.S. Court of Appeals for the Fifth Circuit vacated the DOL's Fiduciary Rule.

The case is, Chamber of Commerce of the USA, et al v. U.S. Department of Labor, Case 17-10238, Document 00514388699.

This case is the first victory for opponents of the Fiduciary Rule who argued the DOL exceeded its authority in issuing its new regulation defining various IRA service providers to be a fiduciary investment adviser and any one participating in a rollover transaction to be a fiduciary. Other circuit courts have ruled the DOL had the authority to adopt the regulatory changes it made.

The DOL has announced it will be reviewing the Fifth Circuit's ruling. In the mean time it will not seek to enforce its Fiduciary regulation and related exemptions, including the Best Interest Contract exemption. The new definition of a fiduciary investment adviser had become effective on June 9, 2017. There are interim rules in effect with respect to the Best Interest Contract exemption and the other related exemptions.

The ruling of this case is not effective until May 7, 2018, because the ruling could be stayed if the case would be reheard by all of the judges of the Fifth Circuit. The DOL has 45 days from entry of the judgment to request a rehearing of the case before all of the Fifth Circuit judges. The DOL will need to decide if it will seek a rehearing or if it wil appeal the case to the U.S. Supreme Court. The DOL might decide to do neither and let the Fiduciary Rule cease to exist. When a rule is vacated, it means the regulation is treated as if it had never gone into effect. The 5-part 1975 regulation of a fiduciary investment adviser (a fiduciary) would again apply.

This fiduciary topic has been highly political since the Obama administration first proposed its change in 2010. We at CWF hope Congress will decide it should be the branch of government making such new laws and act accordingly. Why is the Department of Labor involved? Very few employers offer any type of employer sponsored IRA programs. IRAs are a tax subject and the IRS (and not the DOL) should be providing better administration. However, we will not be surprised if the DOL proposes some course of action which we would keep it involved with IRAs in addition to its continuing to issue individual prohibited transaction exemptions.

We suggest an IRA custodian/trustee continue with its current approach until more is learned. In general, this means an IRA custodian/trustee should not accept any compensation from third parties regarding its IRA products and services. Most financial institutions did not do so prior to the DOL Fiduciary Rule and most do not do so today. Most financial institutions charge reasonable fees as the law has always permitted. Rollover contributions should continue to be sought.

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