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The Department of Labor (DOL) on Friday filed its notice of appeal of a decision that revoked its guidance on fiduciary duties related to rollovers.

“The notice of appeal is consistent with what we expected,” said ERISA attorney Jason Roberts, executive director of the Retirement Resources Institute. “Regulators don’t like to compromise their positions and put opinions out there that challenge their interpretations.”

He tells his advisory clients to stay on course because “the lower court’s opinion could become moot when the DOL finalizes its yet-to-be-proposed investment advice regulations.”

In February, the United States District Court for the Middle District of Florida sided with the American Securities Association (ASA) in the ASA’s lawsuit against the agency, ruling that the DOL exceeded its authority with parts of its Frequently Asked Questions (FAQs) on Prohibited Transactions. Exception in 2020-02.

As the court noted, the DOL issued a series of FAQs in April 2021 where, among other issues, they addressed the point at which a plan to transfer assets from an employee benefit plan to an IRA is considered “on a regular basis.” “.

It also clarified when financial institutions and investment professionals must consider and document “special reasons” for what was deemed to be a proposal in the client’s best interest.

The claim focused on two FAQs in particular: 7 (on a regular basis) and 15 (special reasons). Plaintiffs argued that FAQ 7 unlawfully expanded “the circumstances in which an investment adviser is subject to fiduciary duties.” Thus, it would subject ASA members to the increased and expensive documentation requirements detailed in FAQ 15 that plaintiffs contend are unreasonable and burdensome.

The court first determined that at least one member of the plaintiff association was injured and commented that “the policy in Q7 departs from prior agency guidance, explaining that the provision of one-time counseling ․ Transferring assets from a plan to an IRA may give rise to fiduciary duties under certain circumstances.” The court then held that “the policy referred to in FAQ 7 is contrary to the plain language of the rule which it purports to interpret.”

More specifically, “Because the policy referenced in FAQ 7 waives this program-specific consideration in the transportation context, it covers conduct that would not otherwise give rise to fiduciary obligations.”

The Court agreed with the American Securities Association on Q7. He recognized it as illegal, stating: “Because the policy stated in FAQ 7 conflicts with the Department’s existing regulations, it is an arbitrary and capricious interpretation of the 1975 Regulations.” It struck down the policy as a violation of the Administrative Procedures Act (APA) and “remanded it to the Department of Labor for further proceedings consistent with this order.”

However, it found that the policy in FAQ 15 was not arbitrary and capricious and sided with the DOL.

“In short, the type of documentation required by FAQ 15 is precisely the nature that a prudent investment adviser would undertake,” the court ruled. “Accordingly, it neither contradicts nor goes beyond the 2020 exemption. The Court finds that the policy stated in FAQ 15 is not arbitrary and capricious.”

Although the plaintiffs had sought summary judgment on four separate counts, they won on only one, although it was large in terms of potential long-term consequences.

“While the DOL won the question of whether the procedure in FAQ 15 was appropriate, they lost the larger question of reinterpreting the carriage fiduciary rule,” ERISA attorney Fred Reisch, a partner at legal powerhouse Fegre Drinker. Biddle & Reath LLP, it said at the time. “If the adviser or agent is not accredited, the replacement instruction will not be a prohibited transaction and PTE 2020-02 and the FAQ 15 process will not be needed.”

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