DOL Rolls Back 2024 Fiduciary Rule And 2020 Interpretation Of Five-Part Test

Within the past week, two Texas federal district courts entered orders vacating the Department of Labor’s (“DOL”) 2024 regulation (the “2024 Fiduciary Rule”) re-defining the circumstances under which a person will be deemed to act as a fiduciary under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), by reason of providing investment advice. The DOL’s related 2024 prohibited transaction exemption (“PTE”) amendments were also vacated.¹ The DOL then quickly moved, on March 18, to re-codify the DOL’s 1975 regulation providing that a person will be deemed an investment advice fiduciary if all elements of a five-part test are met (the “Five-Part Test”) and confirm that the pre-amendment versions of the PTEs will be restored. At the same time, the DOL withdrew its preamble to PTE 2020-02, which contained an interpretation of the Five-Part Test that also gave rise to litigation.

The 2024 Fiduciary Rule

The 2024 Fiduciary Rule was the DOL’s third attempt since 2010 to re-define who is a “fiduciary” by reason of providing investment advice. In addition to expanding the universe of persons who could be considered investment advice fiduciaries, DOL’s 2024 rulemaking package would have amended a number of PTEs, including among others, PTE 2020-02, which broadly exempts the receipt of various forms of compensation in connection with the delivery of investment advice, and PTE 84-24, which applies to recommendations of annuities, other insurance contracts, and mutual funds.

Shortly after the DOL issued final notice of the 2024 Fiduciary Rule and related PTE amendments, industry groups filed lawsuits challenging the rule. The first case, Federation of Americans for Consumer Choice Inc. v. U.S. Dep’t of Labor, sought vacatur of the amendments to the fiduciary investment advice definition and PTE 84-24, while the second, American Council of Life Insurers v. U.S. Dep’t of Labor, sought vacatur of all aspects of the 2024 Fiduciary Rule and PTE amendment rulemaking package. The cases proceeded on largely parallel tracks, and on July 25 and 26, 2024, respectively, the Courts issued preliminary injunctions for the plaintiffs collectively staying application of the 2024 Fiduciary Rule and related PTE amendments’ effective date. In response to the Courts’ respective March 12 and March 17, 2026 vacatur orders in the cases, the DOL took action on March 18, 2026 to recodify the Five-Part Test. DOL’s notice indicates the agency will publish restored versions of the PTEs that pre-date the 2024 Fiduciary Rule on its website. As further discussed below, DOL also re-published the original text of PTE 2020-02, minus the exemption’s controversial preamble language.

PTE 2020-02 Preamble

 When the DOL originally issued PTE 2020-02, the accompanying preamble included a “final interpretation” of the Five Part Test. A primary focus of that interpretation concerned the prong of the Five-Part Test requiring that advice be provided on a “regular basis” in order to be considered fiduciary investment advice. The DOL stated that when an advisor has not previously provided advice but expects to regularly make investment recommendations with respect to an IRA as part of an ongoing relationship, a recommendation to roll assets out of an ERISA plan into an IRA could be the start of an advice relationship that satisfies the regular basis prong of the Five Part Test. Thus, the DOL stated that an initial recommendation without a prior relationship could satisfy the regular basis prong and therefore be considered fiduciary investment advice under the Five-Part Test. The DOL took the view that “it is appropriate to conclude that an ongoing advisory relationship spanning both the Title I Plan and the IRA satisfies the regular basis prong.” The DOL’s 2021 Frequently Asked Questions and answers (FAQs) on PTE 2020-02 reiterated this point.

The PTE 2020-02 preamble and related FAQs gave rise to two legal challenges—American Securities Ass’n v. United States Dep’t of Labor, and a separate Federation of Americans For Consumer Choice v. United States Dep’t of Labor  case.² Courts in both cases held that the policy underlying the DOL’s interpretation, represented in the PTE 2020-02 preamble and the 2021 FAQ reiterating the interpretation, was not consistent with the Five-Part Test.

 The DOL’s March 18, 2026 notice effectively withdraws the PTE 2020-02’s preamble in its entirety by republishing PTE 2020-02 in its original form with no preamble. The DOL noted that even though PTE 2020-02 remains operative, the accompanying preamble was no longer reliable and concluded that failure to withdraw the preamble would leave “too much ambiguity regarding what portions of the preamble guidance remain valid and reliable.” The DOL did not explicitly address the current status of its 2021 FAQs, although the DOL would presumably take the view that the FAQ concerning the interpretation of regular basis prong of the Five-Part Test is also withdrawn.

Next Steps

The DOL issued a press release alongside the March 18, 2026 notice stating the DOL “has no current plans to engage in notice and comment rulemaking” on investment advice. The press release quoted Assistant Secretary of Labor Daniel Aronowitz as follows: “The challenged regulation wrongly sought to impose ERISA fiduciary status on securities brokers and insurance agents when there was not a relationship of trust and confidence. The Securities and Exchange Commission and state regulators regulate the activities of securities brokers and insurance agents and will continue to do so.” Given those statements, we would not expect another fiduciary rule to be issued during the current presidential administration. However, the DOL indicated a willingness to consider additional guidance. One potential issue for clarification is the status of DOL Advisory Opinion 2005-23A to Deseret Mutual Benefit Administrators, indicating that advice to rollover is not generally investment advice for purposes of the Five-Part Test. The Deseret letter was itself withdrawn through the now vacated PTE 2020-02 preamble. Additional clarification on the status of DOL’s prior guidance on PTE 2020-02’s conditions may also be appropriate.

Footnotes

1. The orders in both cases vacated the 2024 Fiduciary Rule and related PTE 84-24 amendment. The vacatur order in one case included all of the remaining prohibited transaction exemption amendments that were part of DOL’s 2024 rulemaking package (i.e., the amendments to PTEs 2020-02, 75-1, 77-4, 80-83, 83-1 and 86-128).

2. The American Securities Ass’n v. United States Dep’t of Labor  case also challenged a different FAQ providing guidance on factors that should be considered and documented in determining whether a rollover from an ERISA plan to an IRA may be in the interest of the retirement investor. The Court upheld that FAQ.