District Court vacates DOL’s fiduciary rollover advice policy

On February 13, 2023, the US District Court for the Middle District of Florida, in American Securities Association v. United States Department of Labor, held (among other things) that a critical feature of DOL’s interpretation of the ERISA’s fiduciary advice rule with respect to rollover advice was arbitrary and capricious, declaring DOL’s position unlawful, and vacating its guidance in DOL’s 2020 fiduciary advice Prohibited Transaction Exemption and its 2021 FAQs on the 2020 PTE.

In this article, we review this key element of the court’s decision, beginning with some background.


On December 16, 2020, the Department of Labor released a final class Prohibited Transaction Exemption (PTE) with respect to investment advice fiduciaries. In connection with the PTE, DOL reinstated the 1975 “five-part test” defining who is an “investment advice fiduciary.”

Summarizing, the five-part test provides that to be an “advice fiduciary,” the adviser must (1) render investment advice to the plan, (2) on a regular basis, (3) pursuant to a mutual agreement, (4) where the advice will serve as a primary basis for investment decisions with respect to plan assets and (5) where the advice is individualized.

While the “reinstatement” the five-part test was not the subject of the PTE, the PTE included in its preamble an extensive reinterpretation of it that in significant ways broadened it beyond prior law and practice, recovering significant rules from its failed Fiduciary Rule project.

Subsequent to publication of the PTE, DOL published FAQs providing more detail on specific issues raised by the PTE and its accompanying preamble.

DOL’s claim that post-rollover advice satisfies the “regular basis” requirement

Probably the most controversial provision of this reinterpretation-by-preamble and FAQs was the position DOL took with respect to advice given to plan participants about rollovers, and it was this position that was the main focus of plaintiff’s challenge.

FAQ 7 sets out that position in detail:

A single, discrete instance of advice to roll over assets from an employee benefit plan to an IRA would not meet the regular basis prong of the 1975 test. However, … when the investment advice provider has not previously provided advice but expects to regularly make investment recommendations regarding the IRA as part of an ongoing relationship, the advice to roll assets out of an employee benefit plan into an IRA would be the start of an advice relationship that satisfies the regular basis requirement.

This position, that advice given to an individual-as-IRA holder could support a “regular basis” finding with respect to earlier advice given to the individual-as-plan participant, was novel and controversial.

The court’s decision – advice to an IRA is not advice to an employee benefit plan

The court found that DOL’s interpretation in this regard was “arbitrary and capricious” and therefore violated the Administrative Procedure Act (APA): “the policy referenced in FAQ 7 impermissibly unmoors the focus of the inquiry into whether an individual is a fiduciary away from a specific ERISA plan, rendering it inconsistent with the statute and previous guidance.”

The key issue for the court was “whether, under the text of ERISA and the 1975 Regulation, the future provision of advice pertaining to an IRA would fall within the definition of ‘render[ing] investment advice’ to an employee benefit plan.” The court found it did not. In so finding, the court stated that its “analysis is guided by that in Carfora v. Teachers Insurance Annuity Association of America,” which focused at length on this issue.

Thus, “[b]ecause the policy referenced in FAQ 7 allows fiduciary obligations to be premised on conduct that does not fall within the ‘regular basis to a plan’ analysis, the Department has ‘fail[ed] to comply with its own regulations.’” Its policy position that post-rollover IRA advice could satisfy the regular basis “prong” of the five-part test is therefore “arbitrary and capricious” within the meaning of the APA. On that basis, the court declared that DOL’s policy unlawful and vacated.

The court’s order (by its terms) appears to be applicable nationwide and effective with the filing of its decision.

Other issues

In this article we have focused on the most significant piece of the court’s decision. There were a number of other issues in it. Rather than go into them in detail we list them below:

The court rejected DOL’s claim that ASA did not have standing, finding that its members did sustain injury-in-fact, traceable to the challenged conduct of DOL, that is redressable by the court.

The court rejected DOL’s claim that ASA’s complaint only applied to FAQ 7 and not to the underlying policy position taken by DOL.

The court rejected plaintiff’s claim that DOL’s guidance in the FAQs was a legislative ruling requiring notice and comment under the APA.

The court rejected plaintiff’s claim that specific documentation requirements set forth in FAQ 15 of DOL’s 2021 FAQs was also arbitrary and capricious.

* * *

We now have two courts, in American Securities Association v. United States Department of Labor and in Carfora v. Teachers Insurance Annuity Association of America, that have rejected DOL’s reinterpretation of the five-part test on the issue of rollovers.

Litigation continues in another challenge to the PTE, in Federation of Americans For Consumer Choice, Inc. v. Department of Labor.

It is (very) likely that DOL will appeal the decision in ASA.

We will continue to follow this issue.