In June 2020, the DOL released a technical amendment to implement the Fifth Circuit's 2018 vacatur of the DOL's fiduciary rule on investment advice. The technical amendment reinstated the regulatory definition of an investment advice fiduciary as it existed before the 2016 fiduciary rule, commonly known as the five-part test (29 C.F.R. § 2510.3-21).

Under the five-part test, a person provides fiduciary investment advice if the person:

(See Legal Update, DOL Implements Vacatur of Fiduciary Rule and Proposes Class Exemption for Fiduciary Investment Advice.)

In December 2020, the DOL issued PTE 2020-02. Under PTE 2020-02, financial institutions and investment professionals who provide fiduciary investment advice to retirement investors may receive otherwise prohibited compensation if they comply with certain requirements.

In April 2021, the DOL issued FAQs on PTE 2020-02. Regarding rollover recommendations, the FAQs:

For more information, see Legal Update, DOL Issues FAQs on Fiduciary Investment Advice PTE 2020-02.

A financial services trade association challenged the policies contained in the DOL's FAQ guidance relating to rollover recommendations under the APA. The DOL moved to dismiss for lack of standing or, in the alternative, summary judgment. The trade association also moved for summary judgment.

The district court addressed whether the policy outlined in FAQ 7 was arbitrary and capricious under the APA and concluded that the policy was unreasonable because it conflicted with ERISA and the regulation containing the five-part test.

The court's analysis focused on the prong of the five-part test that requires investment advice to be given "on a regular basis to the plan" to qualify as fiduciary investment advice. Relying on a New York district court decision addressing the "regular basis" prong of the five-part test, the district court reasoned that:

Because this post-rollover advice does not relate to a particular ERISA plan, the district court concluded that this ongoing relationship does not satisfy the "regular basis" prong of the five-part test, and therefore cannot be considered fiduciary investment advice.

Accordingly, the court held that the policy outlined in FAQ 7 conflicted with the regulation containing the five-part test because it would subject certain rollover-related advice to ERISA fiduciary duties, even though that advice would otherwise not qualify as fiduciary investment advice under ERISA or the DOL's prior regulations.

The district court agreed with the trade association that vacatur was the appropriate remedy, citing the seriousness of the policy's deficiencies and the fact that the deficiencies could not be resolved on remand without fundamentally changing the policy.

The district court concluded that the policy contained in FAQ 15 regarding the factors that should be considered and documented as part of a rollover recommendation was not arbitrary and capricious. In reaching this conclusion, the court reasoned that PTE 2020-02's requirement that financial institutions document the specific reasons that the transaction is in the best interest of the retirement investor was not ambiguous and so the DOL's interpretation was not entitled to deference. Even so, the court held that the DOL's policy did not conflict with PTE 2020-02. Instead, in the court's view, the policy merely specified the factors that a financial institution should consider and document as part of a rollover recommendation.