STAYcation for DOL Fiduciary Rule Package Issued By Two Separate Federal Courts in As Many Days

On July 25, 2024, the U.S. Federal Court for the Eastern District of Texas issued a stay (the "First 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") as they apply to accounts subject to ERISA and those provisions of the Code ("Plans") 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 following day, the U.S. Federal Court for the Northern District Court of Texas issued a separate stay (the "Second Stay," and together with the First Stay, the "Stays") that applies not only to the 2024 Fiduciary Rule and changes to PTCE 84-24, but also to other changes that were made as part of the 2024 Fiduciary Rule release, including changes to PTCE 2020-02¹, PTCE 77-4², PTCE 86-128³ and PTCE 75-1⁴.

The First Stay, in the matter of Federation of Americans for Consumer Choice ("FACC") v. the U.S. Department of Labor, and the Second Stay in the matter of American Council of Life Insurers (ACLI) v. U.S. Department of Labor, brought in the Northern District of Texas represent 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 Eastern District Order can be viewed here and a copy of the Northern District Order can be viewed here.

Both courts make clear that the Stays are not limited to the plaintiffs in their respective jurisdictions (i.e., the Eastern District and Northern Districts of Texas, respectively), but, rather, apply nationwide. While the First Stay does not impact the effective date of changes to PTCE 2020-02, PTCE 77-4, PTCE 86-128 and PTCE 75-1(which are scheduled to become effective September 23, 2024) the Second Stay does precisely that. The cumulative effect of the Stays therefore is that the entire 2024 Fiduciary Rule regulatory release is on hold, pending reversal of the Stays on appeal or a final decision on the merits by the courts. Accordingly, until further court action, the 1975 rule (the so called "five part test") that has defined when a person or institution will be deemed to be providing fiduciary "investment advice" for purposes of ERISA and the Code remains in effect, as do the operative provisions of the currently effective PTCEs.

The language and reasoning of the judges in each of the Texas courts' actions are potentially instructive and may provide insights for the direction of any future action. However, we leave any inferences to the reader's judgment. Because the DOL may choose to appeal either or both orders within the next 60 days, we suggest that interested parties "stay" tuned. Invariably, those institutions that had been planning to implement the changes occasioned by the 2024 Fiduciary Rule package will want to consider their next steps in light of these recent events. While these Texas courts have delivered their decisions, it is safe to say that our dedicated group of ERISA and financial services lawyers will have no STAYcation (or vacation) as we continue to assist clients and friends make sense of these developments.