Thank You For Submiting Feedback!
The Department of Labor's ERISA Fiduciary Rule renders the second prong of ERISA's fiduciary status definition in tension with its companion subsections. The Rule thus poses a serious harmonious-reading problem. The investment-advice prong of the statutory application of fiduciary is bookended by one subsection that defines individuals as fiduciaries with respect to a plan to the extent they exercise "any discretionary authority or control over the management of a retirement plan or any authority or control over its assets. 29 U.S.C.S. § 1002(21)(A)(i) and 26 U.S.C. § 4975(e)(3)(A). The following prong identifies as fiduciaries those individuals to the extent they possess any discretionary authority or responsibility in a plan's administration. 29 U.S.C.S. § 1002(21)(A)(iii) and 26 U.S.C.S. § 4975(e)(3)(C). In the Mertens decision, the United States Supreme Court was emphatic that those prongs defined fiduciary in functional terms of control and authority. The phrase control and authority necessarily implies a special relationship beyond that of an ordinary buyer and seller.
Three business groups filed suits challenging the "Fiduciary Rule" promulgated by the Department of Labor (DOL) in April 2016. The Fiduciary Rule is a package of seven different rules that broadly reinterpret the term "investment advice fiduciary" and redefine exemptions to provisions concerning fiduciaries that appear in the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, 88 Stat. 829 (ERISA), codified as amended at 29 U.S.C. § 1001 et seq, and the Internal Revenue Code, 26 U.S.C. § 4975. The stated purpose of the new rules is to regulate in an entirely new way hundreds of thousands of financial service providers and insurance companies in the trillion dollar markets for ERISA plans and individual retirement accounts (IRAs). The business groups' challenge proceeds on multiple grounds, including (a) the Rule's inconsistency with the governing statutes, (b) DOL's overreaching to regulate services and providers beyond its authority, (c) DOL's imposition of legally unauthorized contract terms to enforce the new regulations, (d) First Amendment violations, and (e) the Rule's arbitrary and capricious treatment of variable and fixed indexed annuities. The district court rejected all of these challenges.
Was the DOL ERISA Fiduciary Rule consistent with its governing statutes?
The court held that DOL ERISA Fiduciary Rule conflicted with the text of 29 U.S.C.S. § 1002(21)(A)(ii) and 26 U.S.C.S. § 4975(e)(3)(B). The Rule contradicted the text of the investment advice fiduciary provision and contemporary understandings of its language. The Rule rendered the second prong of ERISA's fiduciary status definition in tension with its companion subsections. There was no merit in DOL's reliance on the Mertens decision for the broader proposition that ERISA departed from the common law definition of fiduciary. The DOL's reliance on the Guidry decision was misleading and misplaced. The Fiduciary Rule failed the reasonableness test of Chevron step 2 and the APA.