Texas Court Issues DOL Fiduciary STAYcation

On July 25, 2024, the U.S. Federal Court for the Eastern District of Texas issued a stay (the "Stay") on the effective date of the Department of Labor's ("DOL") 2024 investment advice fiduciary rule (the "2024 Fiduciary Rule") under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and prohibited transaction provisions of the Internal Revenue Code ("Code") scheduled to take effect on September 23, 2024, as well as accompanying changes to Prohibited Transaction Class Exemption ("PTCE") 84-24 (dealing with certain purchases of insurance and mutual fund products).

The Stay, in the matter of Federation of Americans for Consumer Choice ("FACC") v. the U.S. Department of Labor, represents yet another chapter in the 14-year saga of the DOL's highly controversial attempts to redefine when a person or institution is deemed to provide investment advice that renders it a fiduciary under ERISA (and the prohibited transaction provisions of the "Code). A copy of the order can be viewed here.

Importantly, the Stay is not limited to the plaintiffs in the case or the jurisdiction of the Eastern District of Texas but, rather, applies nationwide. Additionally, the Stay does not impact the effective date of the amendments to any other PTCE, including amendments to PTCE 2020-02 (which are scheduled to become effective 23, 2024) unless further court action is taken in the ACLI v. DOL case which is currently considering a similar motion to stay the effective date of all of the amended PTCEs.¹ Accordingly, until further court action, the 2024 Fiduciary Rule and amendments to PTCE 84-24 will not become effective and the 1975 rule (the so called "five part test") remains in effect.

Challenges to the 2024 Fiduciary Rule and PTCE 84-24 on the merits continue to proceed in this case and in the ACLI case. And although the Texas court may provide some insights for future action, we can make no predictions. Instead, we suggest that interested parties "stay" tuned. While the Texas court has delivered its decision, it is safe to say that our dedicated group of ERISA and financial services lawyers will have no STAYcation (or vacation) as we assist clients and friends make sense of these developments.