President Issues Regulatory Freeze: Will the DOL Fiduciary Rule Saga Continue?

 The regulatory pendulum has been swinging toward deregulation since Donald Trump was inaugurated last month. On his first day in office, January 20, 2025, President Trump issued a presidential memorandum titled “Regulatory Freeze Pending Review.” Presidential memoranda have the same effect as executive orders. The freeze memo is particularly significant because it may ring a death knell for the 2024 Retirement Security Rule, also known as the fiduciary rule, which defines investment advice fiduciary for purposes of ERISA.

The freeze memo, among other things, directs that:

1. Adoption of any newly proposed or final rule be paused for 60 days to allow a Trump-appointed head of agency (or a delegee) to review and approve it. The director of the Office of Management and Budget may exempt a rule where necessary under law or where there were emergent or urgent circumstances.
2. All proposed or final rules that have not yet been published in the Federal Register be suspended for 60 days to allow for the same review noted in item 1.
3. Consistent with law and with the exceptions noted in item 1, all rules that have not yet taken effect be suspended for 60 days to allow additional consideration for opening a new comment period and assessing whether an additional delay is appropriate.

Because the fiduciary rule had not yet taken effect, the freeze memo has had an impact. The fiduciary rule was challenged in, and subsequently stayed by, two district courts in Texas. The judges in these cases found it likely that the fiduciary rule would be invalidated and, therefore, stayed its effectiveness. The Department of Labor (DOL) had appealed the stay, and the two cases were consolidated for appeal. However, last week, the DOL requested and was granted a 60-day abeyance of the litigation/appeal. This move was in line with the freeze memo and could be a first step toward abandoning the fiduciary rule altogether. As the stars align, it would not be surprising if the DOL were to let the stay stand and move on to other goals of the administration.

Another indicator of things to come is the arrival of Daniel Aronowitz, president of Encore Fiduciary, a fiduciary liability insurance underwriting company for American employee benefit plans, with 30 years of experience in the professional liability industry. The president recently nominated Aronowitz to serve as assistant secretary of labor for the Employee Benefits Security Administration (EBSA). In a blog post on the Encore Fiduciary website titled “The Overreaction to the End of Chevron Deference,” Aronowitz describes the fiduciary rule as an example of regulatory overreach. Many practitioners have long held this view, as the DOL has sought to make financial services professionals ERISA fiduciaries when selling to plan participants seeking to roll over to IRAs and annuities. The fiduciary rule would significantly expand Internal Revenue Code provisions and create a prohibited transaction and potential fiduciary liability for financial services professionals.

The Internal Revenue Code has never imposed the same fiduciary liability for prohibited transactions as ERISA’s parallel provisions. The Internal Revenue Code was not intended to create barriers to individuals making decisions about what investments they should have in their own IRAs. ERISA, on the other hand, was originally created to protect participants in defined benefit plans, where third parties invested plan assets and participants were unable to access those benefits until retirement. The DOL has argued that because the world has changed, so should ERISA. However, a legislative change and proper delegation would be the appropriate route for such reforms.

Aronowitz has also opined on the Encore Fiduciary blog that ERISA litigation has gotten out of hand. More cases are using novel and untenable theories of law, and any expansion of the definition of fiduciary or a broadened fiduciary rule would likely cause the plaintiffs’ bar to file even more cases that are undesirable from a policy perspective.

Given the current regulatory environment — including the freeze memo, other executive actions (e.g., EO 14192, which mandates that for every new regulation proposed, 10 regulations must be repealed), and Aronowitz taking the helm at EBSA — one can hope that the ongoing ping-pong match surrounding the proposal, withdrawal, and re-proposal of the fiduciary regulation over the last 15 years will finally be put to rest.