The Fifth Circuit Court of Appeals ruled last week that the Department of Labor (DOL) overstepped its regulatory authority in issuing the DOL Fiduciary Rule. With this decision, the Fifth Circuit is poised to vacate the Rule in Louisiana, Mississippi, and Texas—essentially returning to the prior five-part ERISA test for determining whether a provider of investment advice for a fee is a fiduciary. The decision’s immediate impact, including whether it has potential to apply in all 50 states, is not immediately known and will likely depend on whether DOL appeals the ruling. The court’s decision will apply on May 7 unless it is stayed by an appeal.
TIAA representatives who provide participants with telephone services, educational meetings, seminars and holistic financial planning have always followed diligent processes for gathering information to provide advice in participants’ interests. We modified those processes to comply with Fiduciary Rule requirements that went into effect on June 9, 2017, and regardless of whether the Rule ultimately is eliminated, TIAA will continue to adhere to our core value of putting the client first.
The Rule’s intent of ensuring that retirement investment advice given to any covered client (institutional or individual) is in their best interests is in line with TIAA’s goal of putting customer needs first. This has been at the core of our values and brand promise since our inception 100 years ago. TIAA continues to engage with its plan sponsors and their participants with a focus on plan and participant goals. We have been directionally supportive of the Rule and are not involved with any legal action against it.
Beyond this immediate development, the Fiduciary Rule continues to remain in-flux as DOL already has been considering changes. Additionally, beyond the DOL’s regulation of ERISA plans, other regulators (including at the state level) are considering standards of their own. Ultimately, the Rule’s future will depend on the extent to which the Trump Administration chooses to eliminate or revise aspects of the Rule.
- The decision has no immediate impact on how TIAA engages with plan sponsors, participants, or retail clients.
- Calling the Rule a “regulatory abuse of power,” a Fifth Circuit panel struck down the Rule and all associated exemptions (including the Best Interest Contract [BIC] exemption). Barring appeals, which must be initiated within weeks, the Fifth Circuit will vacate the entire Rule—essentially returning to the prior five-part ERISA test for determining whether a provider of investment advice for a fee is a fiduciary in Louisiana, Mississippi, and Texas.
- DOL can petition for the case to be reheard, including “en banc” before a larger Fifth Circuit panel. Or DOL can appeal to the U.S. Supreme Court—which now may be more likely to take the case, given an arguable split among the Circuit Courts of Appeal.
- Alternatively, DOL could decide not to appeal the decision—which would restore the prior five-part test or facilitate DOL starting afresh with a different fiduciary standard under the Employee Retirement Income Security Act of 1974 (ERISA).
Finalized by the Obama Administration in April, 2016, the Fiduciary Rule represents the most sweeping change to the ERISA regulatory landscape in a generation. Among its most controversial aspects is newly subjecting providers of distribution advice (including whether to roll money out of a retirement plan and into an IRA), and advice to IRAs more generally, to the same fiduciary standard as in-plan advice. An ERISA fiduciary is subject to the prohibited transaction rules; absent an express Prohibited Transaction Exemption (PTE), these rules bar the fiduciary from receiving compensation that results from the advice. The Rule creates a new PTE, known as the BIC.
Shortly after taking office, President Trump directed DOL to undertake an analysis of the Rule. While the Rule and the Impartial Conduct Standards under the BIC generally became applicable on June 9, 2017, the Trump DOL delayed applicability of many of the BIC requirements until at least July 1, 2019. Yet even while some certain BIC requirements are delayed, the Rule currently requires providers of investment advice to follow the BIC’s Impartial Conduct Standards, including by (1) acting in clients’ best interest; (2) avoiding misleading advice; and (3) receiving only reasonable compensation.
A primary goal of the Fiduciary Rule is to ensure that retirement investment advice given to any covered clients (institutional or individual) is in their best interests.
Throughout our history, TIAA has been putting our customers’ needs first—in participant interactions, as well as in how we interact with plan sponsors and plan advisors. We will continue to do so for years to come through our commitment to outcomes, advice and lifetime income. With or without the Rule in effect, we continue to help participants to and through retirement by:
- Offering in-plan allocation advice to participants, sourced from a third party and provided by phone, online (e.g. through our Retirement Advisor tool) and by TIAA financial consultants in the field
- Providing broad education about employer-sponsored retirement plans
- Delivering comprehensive advice to individuals with complex needs beyond their retirement plan
TIAA will continue to comply with the already-applicable aspects of the Rule for all of our covered communications and advice. We will monitor and report on salient developments.