DOL Reinstates Prior Fiduciary Standard Under ERISA
Commentary by Liliana Martin
The U.S. Department of Labor ("DOL") restored its prior five-part test for determining "fiduciary" status under the Employee Retirement Income Security Act ("ERISA"), implementing federal court decisions that vacated the DOL's 2024 "Retirement Security Rule."
Following the DOL's 2024 adoption of the Retirement Security Rule, insurance and financial industry groups challenged the rule in federal court. Ultimately, the 2024 Retirement Security Rule was vacated by multiple federal courts.
The DOL adopted a final rule restoring the prior "five-part test" for determining fiduciary status under ERISA. Under that test, a financial professional is treated as an "investment advice fiduciary" only in narrower circumstances—such as when the professional provides individualized advice on a regular basis pursuant to a mutual understanding that "the advice will serve as a primary basis for investment decisions."
The DOL also addressed Prohibited Transaction Exemption 2020-02 ("PTE 2020-02"), issued in December 2020, which applies only where fiduciary status has already been established and allows investment advice fiduciaries to receive otherwise prohibited compensation if certain conditions are met. The DOL's new final rule reflects court decisions vacating the DOL’s 2024 amendments to PTE 2020-02 and restores the exemption as originally issued in 2020. In addition, following court decisions vacating portions of the preamble guidance—particularly regarding when rollover advice can trigger fiduciary status under the five-part test—the DOL concluded that the affected guidance could not be meaningfully separated from the rest of the preamble. Accordingly, the DOL stated that the entire preamble should no longer be treated as reliable guidance, while confirming that the operative terms of PTE 2020-02 remain fully in effect and republishing the exemption’s text as originally issued.
The final rule takes effect 30 days after publication in the Federal Register.
Commentary
The DOL's reinstatement of ERISA's longstanding five‑part fiduciary test provides a constructive source of stability for market participants. By withdrawing the 2024 Retirement Security Rule, the agency returns to a narrower and more familiar standard that aligns with established industry practice. This shift improves predictability in how fiduciary obligations are applied and reaffirms that fiduciary status depends on a defined, multi‑factor analysis. The action also reduces compliance uncertainty and acknowledges the role of parallel regulatory regimes in supervising financial professionals. The DOL's clarification regarding PTE 2020‑02 similarly limits ambiguity around rollover recommendations while preserving the exemption’s operative terms.