On April 25, 2024, the United States Department of Labor (the “Department”) published its final rule, Retirement Security Rule: Definition of an Investment Advice Fiduciary (the “Rule”), which was set to take effect on September 23, 2024. The Rule intends to protect the interests of retirement investors when receiving advice about their retirement account investments.
However, on July 25, 2025, the United States District Court for the Eastern District of Texas (the “Court”) issued an opinion and ordered that the effective date be halted.
KingSpry’s Employment Law Chair, Avery E. Smith, Esq., reviews the Rule and offers guidance as to how individuals can navigate the uncertain timeline of implementation.
Reform Efforts
The Rule marks the latest chapter in the Department’s efforts to amend its 1975 regulation for determining whether a person is a fiduciary. The 1975 regulation was adopted when the most common type of retirement plan was a defined benefit pension plan. Today, however, 401(k)s and IRAs are the most common ways in which workers save for retirement. As such, the Department found it necessary to amend its previous regulations.
By updating definitions under the Employee Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (“IRC”), the Department intends to expand the definition of an “investment advice fiduciary.”
Defining a Fiduciary
The Rule broadens the circumstances in which a financial services provider qualifies as an “investment advice fiduciary.” Under the Rule, a person is an “investment advice fiduciary,” if they:
- Either directly or indirectly make professional investment recommendations to investors on a regular basis as part of their business, and their recommendations indicate to a reasonable investor that said recommendations are (A) based upon a review of the retirement investor’s particular needs, (B) reflect the application of professional or expert judgment, and (C) may be relied upon by the retirement investor to advance their best interest; or
- Represent that they are acting as a fiduciary under Title I or II of ERISA.
The above-mentioned recommendations must be provided “for a fee or other compensation, direct or indirect” to satisfy the Rule’s definition of an “investment advice fiduciary.”
The Rule will also require financial advice fiduciaries to adhere to strict conduct standards and mitigate any conflicts of interest when offering recommendations to retirement investors.
Defining Retirement Investors
Under the Rule, retirement investors include participants and beneficiaries in workplace retirement plans, IRA owners, IRA beneficiaries, and retirement plan or IRA fiduciaries with authority and/or control over the retirement plan or IRA.
Overall, the Rule is designed to ensure that retirement investors’ reasonable expectations when receiving advice from financial professionals are honored.
Clarifying Existing Regulation
The Department notes that the new definitions “better reflect” the text and purposes of ERISA, in addition to better protecting the interests of retirement investors.
Other Amendments
The Department has also released its final amendments to class prohibited transaction exemptions (“PTEs”), including PTE 2020-02. In its Fact Sheet, the Department notes that both the Rule and amended PTEs “will protect retirement investors by requiring trusted advice provided to follow high standards of care and loyalty.”
Said “high standards of care” require advisors to give prudent and loyal advice, avoid making misleading statements, charge only reasonable amounts for their services, and provide retirement investors with basic information about any conflicts of interest.
Delayed Effective Date
The Rule was set to take effect September 23, 2024. However, the Court’s July 25, 2025, opinion and order halts implementation of the Rule and amendments to PTEs. The Rule was challenged on the basis that it (1) conflicts with the text and purposes of the Employment Retirement Income Security Act of 1975 (“ERISA”) and the Internal Revenue Code, (2) exceeds the Department’s statutory authority, and (3) is arbitrary and capricious in violation of the Administrative Procedure Act (“APA”). The Court validated these arguments, ordering a nationwide stay of the effective date.
On July 26, 2024, the United States District Court for the Northern District of Texas issued its own stay of the Rule and PTEs. In this case, the Department faced similar challenges. The Plaintiffs sought a preliminary injunction or a stay of the Rule’s effective date, arguing that the Rule was unlawful, arbitrary, and capricious, and that it would cause them irreparable harm. This Court also validated such arguments, granting the stay pending final judgment and/or appeal(s).
Moving Forward
Unless the Department appeals and succeeds in reversing these two (2) court opinions, the Rule will not take effect this September. This does not come as surprise as several federal agencies continue to face legal challenges to their regulations, such as the Federal Trade Commission and the Department of Education.
Although the fate of the Rule is uncertain, financial advisors and institutions are encouraged to:
- Review the Rule and consult with legal counselor to determine how their businesses may be impacted, should the Rule take effect; and
- Be proactive in identifying potential concerns now, so that they can avoid violations and mitigate liability come the effective date.
