Farewell to the Fiduciary Rule? The Fifth Circuit Vacates the Fiduciary Rule -
On March 15, 2018, the Fifth Circuit Court of Appeals, in Chamber of Commerce v. U.S. Department of Labor, vacated the Department of Labor’s (the “DOL’s”) fiduciary rule (the “Fiduciary Rule”) in a 2-1 decision. The Fiduciary Rule, which expansively reinterprets the term “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and includes amendments to six existing exemptions and two new exemptions to the prohibited transaction provisions in both ERISA and the Internal Revenue Code of 1986, as amended (the “Code”), generally went into effect on June 9, 2017 (with some provisions not coming into effect until July 1, 2019). Following the Fifth Circuit’s opinion, the DOL was reported to have announced that it will not enforce the Fiduciary Rule “pending further review.”
The Fiduciary Rule expands the category of advisers who are fiduciaries with respect to ERISA plans and individual retirement accounts (“IRAs”), and establishes two new prohibited transaction exemptions intended to allow service providers that become investment advice fiduciaries under the new rule to continue receiving compensation. Under the “best interest contract” or “BIC” exemption, an adviser that gives investment advice concerning an IRA or a non-ERISA plan must enter into a written contract with the advice recipient under which the recipient may sue the financial institution for failure to meet the fiduciary requirements.
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