The U.S. Department of Labor has backed off its appeal of its Trump-era fiduciary rule in federal court, a sign fiduciary experts and lobbyists say may indicate that the agency is waiting to propose a new fiduciary rule after the dust clears on the confirmation of President Joe Biden’s controversial labor secretary nominee.

“I suspect that the DOL has drafted the proposal and is sitting on it,” said Fred Reish, a fiduciary expert and partner at Faegre Drinker.

“The rumor is that the department doesn’t want to send the proposal to the Office of Management and Budget until the administration’s nominee for secretary of labor is confirmed by the Senate. The concern is that one or more senators could be opposed to some of the provisions in the proposal and that could complicate the confirmation process.
 
“But for that political consideration, I believe that the proposal could go to the OMB [the Office of Management and Budget] in a matter of a few weeks,” Reish added.

But the confirmation of Julie Su, former California labor secretary, has been thrown into doubt by Democratic Sen. Joe Manchin, who indicated earlier this week that he doesn’t support the pick and is soliciting a list of alternate candidates, CNN reported earlier this week. Su could be confirmed without Manchin's vote, but Democrats would need the votes of everyone else in their caucus, including Sen. Kyrsten Sinema (I-Ariz.), who has not indicated where she is leaning on the nomination.

Proposing a new fiduciary rule is “a huge priority,” Lisa Gomez, assistant secretary of labor for the Employee Benefits Security Administration, said at the Employee Benefits Spring Policy Forum on May 11.

Adding to the conjecture, last week the DOL withdrew its appeal of a Florida District Court decision, which mostly sided with an American Securities Association lawsuit, that the agency did not have the authority to assert fiduciary duty over professionals offering a single recommendation to roll money out of a defined contribution plan and into an individual retirement account.

The change in course, however, may mean that the DOL is girding for its real battle—to get a new fiduciary proposal over the finish line during President Biden’s first, and potentially only, term as soon as the dust settles on Su’s confirmation.

“That’s the million-dollar question. Is the Biden administration holding this proposal back pending the confirmation of Julie Su?” asked Jason Berkowitz, chief legal and regulatory affairs officer at the Insured Retirement Institute. “They may have decided to hold back what could be viewed as a controversial proposal while there’s a nominee going the  confirmation process because it could have a negative impact, we simply don’t know.”

Berkowitz said, however, that he is pleased that the latest court ruling in Florida appears to constrain the DOL in terms of application of the fiduciary rule to ERISA plan rollovers. 

“From our perspective, the Florida court said, ‘You at EBSA have jurisdiction over retirement plans only. Once the investor’s money leaves a plan, you don’t have jurisdiction, so you can’t count rollover advice outside of plans as determining whether a professional is a fiduciary or not.’ That is something we agree with wholeheartedly,” Berkowitz said.

The attorney said IRI believes that rollover advice outside of ERISA plans is already regulated by the Securities and Exchange Commission, under Regulation Best Interest, and by 40 state insurance commissioners whose states have passed the National Association of Insurance Commissioners’ best interest regulations.

Reish said not knowing what the DOL plans to propose is leaving broker-dealers and investment advisors in limbo. “Their annual retrospective reviews and reports are due to the DOL by June 30—for calendar year 2022. The broker-dealers and investment advisory firms are, for the most part, continuing work on those reports,” Reish said.

Firms may be less concerned about minor compliance issues on rollover recommendations, on the basis of the Florida court’s decision, but Reish urged caution regarding the belief that rollovers outside ERISA plans don’t require the application of fiduciary regulations.

“Both Reg BI and the SEC’s “Interpretation for Investment Advisers,” as well as SEC staff bulletins issued last year and this year, have similar, but not identical, requirements for rollover recommendations.  So compliance with many of the DOL’s requirements is also needed to comply with SEC rules,” Reish said.