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On October 31, 2023, the US Department of Labor (“DOL”) unveiled a new proposed regulation titled “Retirement Security Rule: Definition of an Investment Advice Fiduciary” (the “2023 Proposed Rule”) and proposed amendments to several prohibited transaction exemptions (“2023 Proposed PTE Amendments”). With these proposals, the DOL aims to expand the criteria for determining who would be an “Investment Advice Fiduciary” for purposes of Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and force many such “Investment Advice Fiduciaries” to comply with Prohibited Transaction Exemption (“PTE”) 2020-02 for fee and affiliated investment conflicts.

The 2023 Proposed Rule, if finalized, would modify the “Five-Part Test” for determining fiduciary status that has been in effect since 1975. In the preamble to the 2023 Proposed Rule, the DOL stated that the Five-Part Test was no longer suited to address the modern landscape of professional investment advice. In particular, the DOL was concerned that the “regular basis” and “mutual understanding” prongs of the Five-Part Test exclude many circumstances in which a fiduciary of an ERISA plan, plan participant or beneficiary, or IRA owner (each, a “Retirement Investor”) may reasonably assume that they were receiving investment advice based on the Retirement Investor’s best interest.

The 2023 Proposed Rule marks the third attempt since 2010 by the DOL to replace the Five-Part Test. The most recent attempt was an updated regulatory definition of Investment Advice Fiduciary issued on April 8, 2016 (the “2016 Fiduciary Rule”), which was vacated in its entirety by the US Court of Appeals for the Fifth Circuit in 2018. The court’s opinion stated that the 2016 Fiduciary Rule had strayed too far from the common-law definition of the term fiduciary, which turns on the existence of a relationship of “trust and confidence” with the client and does not extend to those who merely sell products to their clients.Continue Reading DOL Releases New Proposed Regulation Regarding Investment Advice Fiduciaries

On November 22, 2022, the U.S. Department of Labor (the “DOL”) published a regulation entitled “Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (the “Final Rule”). The Final Rule follows proposed rules regarding ESG investing and proxy voting by plan fiduciaries, issued on October 14, 2021 (the “Proposed Rule”) and amends prior regulations on the same topic issued by the DOL under President Trump in 2020 (the “2020 Rule”).

In the Final Rule, the DOL repeatedly emphasized that the regulation was primarily aimed at removing and remedying the chilling effect on ESG investing by plan fiduciaries created by the 2020 Rule. While the Final Rule takes a more permissive stance on the consideration of climate change and other ESG factors in investment decisions by plan fiduciaries than the 2020 Rule, the DOL cautioned that a plan fiduciary should not subordinate the interests of plan participants and beneficiaries to any collateral benefits (i.e., ESG objectives).

The Final Rule largely tracks the Proposed Rule, with a few notable exceptions summarized below.Continue Reading DOL Finalizes Rule Regarding ESG Investing and Proxy Voting by Plan Fiduciaries