Is the Biden DOL Rule dead under Trump?
The Biden Administration put forth changes to section 3(21)(a)(ii) of ERISA in April 2024.
Section 3(21)(a)(ii) of ERISA defines how an adviser can become an ERISA Fiduciary by providing “non-discretionary” advice.
Since 1975 there has been a Five Part Test to determine if you were operating as an ERISA Fiduciary.
The Biden Administration looked to amend this with a three-part test.
Under the 1975 law, and what is currently in place, you can become an ERISA Fiduciary if you can answer “yes” to all five of these parts.
1) Provide investment advice for a fee
2) On a regular basis
3) Pursuant to a mutual understanding
4) The advice is a primary basis for investment decisions
5) The advice is individualized for the participant or plan
If you can answer “no” to any of those questions, then you are NOT an ERISA Fiduciary.
The Biden Administration wanted to cast a wider net to include almost anyone in the financial industry to become an ERISA Fiduciary.
Specifically, they were looking to pull in insurance professionals under the definition of an ERISA Fiduciary.
The Biden Administration also was looking to change the existing prohibited transaction exemptions (PTE) available to financial professionals and trying to make almost everyone use PTE 2020-02. The Biden Administration liked PTE 2020-02 because it requires the financial adviser AND their financial firm to acknowledge they are ERISA Fiduciaries under 3(21)(a).
One of the main reasons the Biden admin wanted more financial professionals to be become ERISA Fiduciaries is that an ERISA Fiduciary can be sued in Federal Court. This is a rarity in the financial world since almost all contracts have mandatory arbitration agreements which prevents your clients from accessing the court system.
The Biden changes to ERISA were scheduled to take go into effect on September 23, 2023.
However, two Texas courts pushed “pause” on the rule as several lawsuits have been filed to challenge the rule.
In September of last year, the Biden administration filed motions to overturn the “pause” and have the rules go into effect before the court has a chance to be settled.
Now, this is where things get a little complicated.
The courts have not yet ruled on the Biden Administration’s motion to “unpause” the rule.
So, the question remains, what will the Trump administration do with the current court proceedings.
Almost every article I have read and podcast I have heard discussing this matter have come to the same consensus . . .the Trump administration will just pull the justice department from defending the rule in court.
Thereby granting an immediate victory to the Plaintiffs in the two Texas courts and effectively getting rid of the Biden Administration’s changes.
I have read the Biden Administration’s changes from cover to cover. In fact, I have it all printed out and sitting on my desk in two three inch binders. A full chapter of the ERISA Best Practices “ethics” CE Course I created was dedicated to the Biden changes.
If you’re a FINRA Rep or an Investment Adviser Representative (IAR) the Biden changes would have had a minimal effect on your practice. You already have to abide by most of the rules as an ERISA Fiduciary and under the SEC’s REG BI rule.
However, if you were an insurance broker or captive agent, the Biden administration’s changes will have a severe impact on the way you do business!
So, one would have to wonder, what exactly will the Trump administration do?
Again, the consensus is that he will just let the rule die on the vine.
And I am 80% convinced that this is exactly what will happen.
Mainly due to Trump’s hatred for the Biden Administration.
However, 20% of me thinks that he may decide to fight it out in court and have try to have it implemented.
See, the Biden changes give massive protections to hard-working Americans against the insurance industry that they never had before. Trump may want to make it seem that he is battling for the “little guy” be ensuring they will have the right to the court system when dealing with insurance agents. This is a right that the IRA owners currently do not have when buying insurance products (annuities).
Also, it was the Trump 1.0 Administration that literally created PTE 2020-02.
The same exemption that the Biden administration wanted to make the law of the land.
Trump’s ego may influence him to push for the courts to approve the Biden changes.
However, I am not sure that the DOL Rule is very high up on his agenda.
So, if I was a betting man (which I am not), I am 80% sure that he is going to let this die on the vine.
However, I am also 80% confident that within the next couple of years, he will create his own rule for the DOL that will be very similar to the Biden rule that will pull the insurance industry under the umbrella of requiring them to operate as ERISA Fiduciaries.
Only time will tell.