(Article from Registered Funds Regulatory Update, July 2026)
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On March 18, 2026, the U.S. Department of Labor’s Employee Benefits Security Administration announced the removal of the Biden Administration’s 2024 “Retirement Security Rule: Definition of an Investment Advice Fiduciary” from the Code of Federal Regulations. The DOL took this action in response to final judgments issued by the U.S. District Courts for the Northern District of Texas and the Eastern District of Texas vacating the rule. The vacatur notice, published in the Federal Register, reflects the judicial resolution of the legal challenges to the 2024 rule and the related amendments to prohibited transaction exemptions, and restores ERISA’s longstanding five-part test for determining whether a person is an investment advice fiduciary.
The 2024 Retirement Security Rule was the DOL’s third attempt since 2010 to expand the definition of who constitutes a “fiduciary” when providing investment advice to retirement plans and individual retirement accounts. The rule would have extended ERISA fiduciary duties to cover certain one-time professional retirement investment recommendations—such as advising an employee to roll over a 401(k) into an IRA, recommending the purchase of an annuity, or advising on plan investment menu design—that had not previously triggered fiduciary status. Rather than relying on the traditional hallmarks of an ongoing advisory relationship, the rule focused on whether the advice was provided within the context of a trusted advice relationship. A similar rule finalized by the DOL in 2016 during the Obama administration was vacated in 2018 by the U.S. Court of Appeals for the Fifth Circuit on the ground that it exceeded the DOL’s statutory authority. The Courts concluded that the 2024 rule suffered from many of the same legal deficiencies.
With the 2024 rule now vacated, the governing standard reverts to the DOL’s original 1975 regulation, known as the “five-part test.” Under this test, a person is deemed an investment advice fiduciary only if all five conditions are met: (i) the person renders advice to the ERISA plan or an IRA as to the value of securities or other property, or makes recommendations as to investing in, purchasing, or selling securities or other property; (ii) on a regular basis; (iii) pursuant to a mutual agreement or understanding; (iv) that such advice will serve as a primary basis for investment decisions; and (v) that the advice will be individualized based on the particular needs of the plan or IRA. Because each of these elements must be satisfied simultaneously, most one-time or episodic recommendations—such as a single rollover suggestion or a standalone annuity sale—do not satisfy the test and therefore do not carry ERISA fiduciary obligations.
This development is significant for registered funds because fund shares are distributed to retirement investors primarily through broker-dealers and financial advisors who make recommendations in connection with 401(k) rollovers, IRA contributions, and plan menu selections—the very transactions the vacated rule would have subjected to heightened fiduciary obligations. The vacatur therefore preserves the existing, less restrictive framework governing these distribution arrangements, including the compensation structures—such as revenue sharing, 12b-1 fees, and sales loads—that fund complexes and their intermediaries rely on to distribute fund shares to retirement investors.
In explaining the decision, Assistant Secretary of Labor for Employee Benefits Security Daniel Aronowitz stated that the 2024 rule “wrongly sought to impose ERISA fiduciary status on securities brokers and insurance agents when there was not a relationship of trust and confidence.” The DOL further emphasized that the SEC and state regulators already oversee the activities of securities brokers and insurance agents, and that such oversight will continue. As a practical matter, this reflects the government’s decision to defer to existing regulatory frameworks—such as the SEC’s Regulation Best Interest—rather than superimpose additional ERISA fiduciary obligations on top of one-time retirement investment recommendations, including rollovers and annuity purchases.
The DOL stated that it does not currently intend to engage in notice-and-comment rulemaking on this topic and remains focused on its core mission of “redoubling its efforts to make employer-based U.S. retirement plans the strongest and most innovative in the world.”
DOL News Release, US Department of Labor Restores Long-Standing Investment Advice Rule After Pair of Court Decisions Vacate 2024 Retirement Security Rule (Mar. 18, 2026), available at: https://www.dol.gov/newsroom/releases/ebsa/ebsa20260318.